How Is a Business Valued in a Divorce?

 Posted on April 16,2024 in Illinois Divorce

When it comes to dividing assets in a divorce, Illinois law grants both spouses the right to “marital property.” There are three kinds of assets that are considered marital property and must be divided between both spouses in a divorce:

• Assets that were acquired by either spouse during the marriage

• Assets that were acquired by one spouse before the marriage, but blended with the other spouse’s assets

• Assets that were acquired by one spouse before the marriage but the other spouse contributed significantly to them during the marriage

So, if you are getting divorced and own a business that falls into any of the above categories, your spouse will likely be entitled to a part of it. Keep in mind that asset division is a complex legal issue, so it is best to consult an experienced divorce attorney to be sure.

Before your business is divided, it will first need to be valued. A forensic accountant or business valuator will appraise your business using one of three main approaches.

Market Approach

In the market approach, the accountant will value your business by looking at similar businesses that were sold. He or she will analyze the similarities and differences between your business and your close competitors. Ultimately, the accountant’s goal is to establish what Illinois law calls the “fair market value” of the business. 

Asset Approach

In the asset approach, the accountant will appraise the business based on its tangible and intangible assets. This means that he or she will determine the financial value of everything belonging to the business, including:

• Real estate

• Intellectual property, such as patents, copyrights, and trademarks

• Equipment

• Stock

Another asset that will be assessed is the “enterprise goodwill” of the business. Enterprise goodwill refers to characteristics of the business that draw customers no matter who owns it. These include the business brand, reputation, customer loyalty, and location. So, if you own a local bar, for example, it will matter whether it is a seedy biker gang hangout or if it is the type of bar “where everybody knows your name.” All this will be factored into the business valuation.

Income Approach

In the income approach, which is the most common, the accountant will value the business based on how much revenue it brings in. This will be done by analyzing the company’s profit and loss balance sheets and determining its profitability. 

Contact a St. Charles, IL Divorce Attorney

The first step to take if you are a business owner going through a divorce is to contact a skilled Kane County, Illinois divorce attorney who is experienced in asset division and complex financial matters in divorce. Tim Weiler is a certified financial litigator who is highly trained in handling financial issues and will help navigate you through the legal process. Contact Weiler & Associates, Inc. at 630-331-9110 today.