Asset and Market Approach When Valuing a Business in a Divorce

 Posted on June 26, 2024 in Illinois Divorce

Divorce proceedings can get even more complicated when a business is involved. Valuing a business can be a challenging task, and Illinois courts recognize several methods to do this properly. While the income approach is one way to determine a business’s worth, asset and market approaches tend to be more common. If you need assistance in matters related to your divorce, attorneys in Illinois are ready to assist you.

Understanding the Asset Approach

The asset approach, also known as the book value approach, involves calculating the net value of the business by considering its total assets and subtracting liabilities. This method gives a snapshot of what the business is worth if it were to be liquidated.

The asset approach focuses on the following:

• Assets – This includes everything the business owns, such as buildings, equipment, inventory, and even intangible assets like patents and trademarks.

• Liabilities – These are the debts and other financial obligations of the business.

• Net value – By subtracting the liabilities from the assets, you can get the net value of the business.

The asset approach tends to be straightforward and can be especially useful for businesses that possess significant tangible assets. The asset approach will provide a clear, tangible value to the business. On the other hand, the asset approach might undervalue businesses that are profitable or have substantial potential for earnings growth because it does not consider future income.

Understanding the Market Approach

The market approach values a business based on what similar companies have sold for in the market. It is like comparing real estate prices in a neighborhood to determine the value of a house.

The market approach focuses on:

• Comparable sales – Identifying recent sales of similar businesses in the same industry and geographic area.

• Market trends – Considering market conditions and trends to ensure the valuation is up to date.

• Adjustments – Making adjustments for any differences between the compared businesses and the ones being valued.

The market approach is beneficial because it is grounded in real-world transactions. It reflects what buyers are willing to pay for similar businesses, providing a market-driven valuation.

However, finding comparable sales can be challenging, especially for unique or niche businesses. Market conditions can also fluctuate, affecting the valuation.

Contact Our Kane County, IL Business Valuation Lawyers

In an Illinois divorce, achieving a fair business valuation is important for equitable asset division. Consulting with the seasoned St. Charles, IL business valuation attorneys at Weiler & Associates, Inc. can help ensure a fair outcome in divorce proceedings. Call 630-331-9110 for a private consultation today.