Your business will likely become a focal point in the property division phase of your divorce.
Before you sell the business or buy out your spouse’s interest, you must determine the value. Here are three common methods for accomplishing that task.
1. The market method
Similar to the method your real estate agent might use in selling your home, the market approach considers comparable business sales. However, it may prove difficult to find similar businesses near yours that have sold in a fairly recent timeframe.
2. The asset formula
In this formula approach, Assets minus Liabilities equals Value. The tangible assets of the business include infrastructure, inventory and other physical assets. Intangible property refers to non-physical assets such as intellectual property and accounts receivable. Issues with certain assets may arise because of depreciation. Also, inventory, though valued at cost, may actually be worth less due to age.
3. The income approach
The most common method of valuing a business is the income approach. This method employs historical information plus formulas to anticipate future profits. If the business is small enough, your divorce attorney may be able to assign a fair market value. Otherwise, you can hire a Certified Business Appraiser to perform a valuation. If the company is large, both you and your spouse may decide to hire professional appraisers.
As you approach property division, a value must be placed on all your assets and debts. Whether you decide to put the business on the market or buy out your spouse’s share, you will need to know how much the company is worth. The sooner the determination, the easier it will be to decide the fate of the business that undoubtedly means a great deal to you.