How Is the Value of a Business Determined During the Divorce Process?

 Posted on September 29, 2021 in Illinois Divorce

In most divorce cases, couples will need to address multiple types of legal and financial issues as they work to separate their lives from each other and legally terminate their marriage. These issues can be especially complicated in a high net worth divorce, and if a spouse is a business owner, ownership of business interests may need to be addressed during the property division process. Whether a business is part of the marital estate or is owned separately by one spouse, a business valuation will usually need to be performed to ensure that the parties fully understand what this asset is worth. By understanding the procedures followed during a business valuation, spouses can ensure that they will be able to determine the value of their property and divide their assets fairly and equitably.

Business Valuation Methods

Business owners and their spouses will often need to work with experts such as financial analysts or forensic accountants to ensure that the value of a business is calculated properly. These experts may use one or more of the following methods:

• Asset-based valuation - The most straightforward way to determine the value of a business is to add up all of its assets and subtract its liabilities. Assets may include physical items such as inventory and equipment, as well as real estate holdings, intellectual property, accounts receivable, and intangible assets such as goodwill and reputation. Liabilities may include any debts owed by the business, as well as obligations under contractual agreements and other ongoing payments. This calculation can provide a good picture of the current value of business assets, but it will not necessarily address the business’s potential for growth in the future.

• Market-based valuation - The current market value of a business may be estimated by reviewing other companies in the same industry and geographic area that have recently been sold. This method may be used if a couple plans to sell a family business during their divorce, but it may not provide a full picture of the value that a business will provide to its owner as an ongoing concern.

• Earnings-based valuation - Financial analysts may review a business’s revenues and projections of profits and losses over the next several years to get an idea of what the company is currently worth and how its value may be expected to change in the future. This can give the parties an idea of the gains that may be realized through continued ownership of a share of the business.

Contact Our Kane County Business Valuation Lawyers

To ensure that business assets are addressed correctly during your divorce, you can secure representation from a lawyer who has experience with matters involving the division of property, as well as other financial concerns that affect couples with a high net worth. At Weiler & Associates, Inc., we will make sure you understand these issues, and we will work with you to negotiate a divorce settlement that will provide you with the financial resources you need. Contact our St. Charles high asset divorce attorneys at 630-331-9110 to arrange a confidential consultation today.

Sources:

https://www.ilga.gov/legislation/ilcs/documents/075000050k503.htm

http://www.smbceo.com/2019/11/19/how-to-value-a-small-business-for-divorce/