How to Value a Business for Divorce
Valuing a business can be a complicated and time consuming undertaking. When a couple divorces the parties must decide whether they will continue working as business partners or sell the business and divide any profits from the sale. Often a more realistic approach is when one partner buys out the other partner's interest in the business. The challenge then becomes determining how much of the business is marital property and what it's worth.
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Instructions
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Hire a professional business appraiser. Select someone who is credentialed as a Certified Business Appraiser or Accredited Senior Appraiser. These credentials qualify the person as a skilled expert with experience in conducting business appraisals. You also want someone who is knowledgeable about your particular type of business.
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Organize financial statements and tax returns. Up-to-date financial records can make the process of valuing your business easier. Detailed documents help show how much profit a business earns. The more years of business history you can show the better. While analyzing tax returns and financial statements provides a start, depending on the size of the business, valuation can involve a much more complex process.
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Establish what the business owns as well as what it owes. Assets include both tangible and intangible property. Office equipment and inventory are examples of tangible assets. Intangible property may include trademarks and business goodwill --- the reputation a business earns, especially in regard to how well it serves its customers. Liabilities refer to what a business owes.
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Discuss with the appraiser the best method or methods to use for estimating the value of your business. One method is the market approach, which compares a business to a similar business that has recently sold. This might not be a realistic approach if comparing a family-owned business to a publicly held company. The asset approach considers the values of both the assets and liabilities of a business. The income approach looks at the value of cash flow and profits the business expects to make. Although trying to estimate future profits may make more sense, appraising the value of the business assets is easier.
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Base the value of the business on its current fair market value. The business may have increased or decreased in value during the time of your marriage. Any changes in value up or down can impact the division of property.
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Tips & Warnings
Valuing a business can be difficult, especially if the business was created prior to the marriage. You may get a fairer valuation by using a single business appraiser. If you hire one appraiser to work for you as a couple, you may come out with better results than if each party hires a separate appraiser. In most cases, if a business was started after a couple married, the courts will award the other spouse some financial interest in the business even if that person never worked in the business.
