How to value a business during divorce

On Behalf of | Jun 12, 2020 | Divorce

Dividing assets in a divorce are often one of the most complicated parts of the process. Because couples rarely split everything in half, the two sides go through a process of valuing everything so that they can arrive at a fair and equitable agreement. While this may sound relatively simple, it can be hard agreeing to the value of something. It is especially true when the asset is a business.

Value involves different factors

Many different factors go into the value of a business. Partnerships or larger companies have this figured out as part of the business agreement, but individuals who own small businesses may have no real idea of what the value is. Determining this can involve some of the following metrics:

  • Assets and debts: Tangible property, cash, and a building, as well as earning potential and reputation, are assets. Debts will be money owed and operating costs. This all goes into determining the profitability of a business.
  • Investment: There may be outside investment that also needs documentation.
  • Value: This is a relative term and may be calculated in different ways. One method is the book value, which lists the assets and debts to come up with a bottom-line value. Market value would be the price of the company if it sold on the open market. These numbers will also shift seasonally, so analysts should look at a few years to get an accurate number. It is best to do this around the time of the divorce.

Outside expertise may be necessary

Many family law attorneys have experience handling a divorce that involves one or more businesses. However, it may be necessary to bring in a forensic accountant or business appraisal expert, especially if a spouse is trying to under-value, over-value, or hide income and assets. These experts working with a knowledgeable attorney can help ensure a fair value put on this significant asset, which helps create an equitable divorce agreement.