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How to assess a business’s value during divorce

On Behalf of | Aug 20, 2021 | Divorce

From a financial perspective, there’s a lot at stake in a divorce. You’ll have to divide your marital assets in a fair fashion, and child support and alimony may come into play. But the financial implications of your marriage dissolution may be more severe if you or your spouse owns a business given that there can be a lot of value in the business’s operations and its equipment and fixtures. Therefore, when it comes to the property division process, when a business is involved, you should know how to appropriately address the issue.

The importance of business valuation

Since marital assets are divided in an equitable fashion in Indiana, you have to appropriately valuate a business if you hope to obtain or retain your fair share of it. But there are several ways to assess the value of a business. You’ll have to figure out which one is best for you. Here are some of your valuation methodology options:

  • Market capitalization: This is perhaps the simplest way to valuate an existing business, but it primarily pertains to businesses that have stock. Here, you simply multiply the number of stocks by their current price to reach the business’s current overall market value. This option likely won’t be all that helpful to small business owners.
  • Revenue: A common way that a small business’s value is calculated is by assessing revenues. Here, the business’s value is obtained when revenues are analyzed over a certain period of time, taking into account the economic environment and other factors that could have contributed to the business’s revenues during that period of time.
  • Earnings: Perhaps the most accurate way to assess a business’s value is to look at earnings. After all, most people who hope to obtain an interest in a business care most about profits. Looking at a business’s profits over a certain period of time is easily understandable and provides a clear snapshot of the business’s success and longevity.
  • Liquidation: Another way to look at the value of a business is to consider what it would be worth if it were to be sold off. Of course, with this method you’d have to take into account any outstanding liabilities that the business may have, which can have a significant impact on the ultimate valuation of the business.

Don’t overlook the marital asset analysis

While business valuation can be incredibly important during your divorce, don’t overlook the fact that the business will have to be deemed a marital asset before it can reach the property division phase of your dissolution. In some instances, businesses that were owned prior to marriage are kept separate. In many other cases, though, the business becomes a marital asset, at least to a certain extent, when a spouse contributes to the business’s growth and success, as well as when business assets are co-mingled with marital assets. Make sure you’re conducting an appropriate assessment here to ensure you have a basis to argue for what you believe to be fair.

Know how to protect your interests

We know that coping with a divorce is stressful enough without dealing with the financial complexities of a business. However, if you want to protect your financial interests as fully as possible post-divorce, then you really should understand the law, how it applies to your set of circumstances, and what you can do to best position yourself for success.

As dark as everything may seem now, just remember that there is light at the end of the tunnel. You can come out of your divorce stronger than you ever imagined.