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How businesses are evaluated at divorce

On Behalf of | Apr 12, 2021 | High Asset Divorce |

If you are a business owner, going through a divorce could mean that you need to divide the value of your business. If you are set on keeping your business but are considered to be a marital asset, you may need to buy out your divorcing spouse. This will mean that you need to gain a reliable business valuation.

Choosing the right method of valuation for your situation will depend on the type of business you have and the type of assets held within your business. The fair market value of your business as it was on the date of separation will need to be established. The following is an overview of some of the possible routes to a business valuation at divorce.

Asset-based business valuations

If your business is one that is asset-heavy, an asset-based business valuation may be a good route. This method focuses on the total net asset value of the business. This simply means that the total liabilities and debts that the business has are subtracted from the total value of the assets. While this is a relatively easy way to value a business, it may not be able to account for the value of the ideas and processes that are essential for bringing about profitability.

ROI-based business valuations

ROI-based business valuations focus on the rate of return and projected future profitability. To do this, the evaluator looks at the cash flow of the company to predict the future financial success and therefore the value of the business.

Market value based business valuations

Market value-based business valuations take into consideration similar types of businesses that were recently sold to estimate the value of the business. This can be very subjective depending on how niche your business is.

Make sure that you are able to accurately value your business if you are going through a divorce. An inaccurate valuation could result in significant financial assets during the process of dividing marital property.

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