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Valuing a business for a divorce

| May 16, 2019 | Firm News |

A couple has reached the end of a marriage. But this couple has achieved financial success and accumulated property and assets, including a business. To reach a fair settlement, the spouses need a valuation of the business, so they can effectively divide this financial asset. Missouri is an equitable division state, and as such, the law requires equitable distribution of property and assets to each spouse during a divorce proceeding.

Ownership stake in the business

If either spouse launched, bought or ran the business during the marriage, the couple shares this marital property. However, if one spouse has a larger role in the business, that spouse has a larger percentage claim in the business. The law considers a business to be a non-marital asset if one spouse owned and ran the business before the marriage and during the marriage he or she exclusively owned and managed it.

Two courses of action to consider

You can pursue two courses of action if you’re planning to divorce. You can reach a suitable and amicable agreement with your spouse before the divorce proceeding begins. In most cases, this out-of-court settlement is the best-case scenario, but a lawyer should review the contract or document that transfers the business interest one from spouse to the other. The other option is to settle the equity stake in the business through mediation, arbitration or a court proceeding.

Determining the value of the business

Once it’s been established if the business is a marital or individual asset, you need to decide the most accurate and valid method for determining the value of the business. You can use an asset formula, income approach or market approach. If you use the market approach, you conduct research on similar businesses in the same market that is roughly the same size, revenue and growth projections. If a similar business has been sold in the recent past, the financial model and sale serve as a reference.

Divorce is a difficult process. But a divorce does not mean that the family business must close. While valuating and compensating a spouse makes the process more complex, you should be able to reach an viable solution.