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3 ways to value the family business in a divorce

On Behalf of | Nov 8, 2021 | Divorce |

You hate the thought of breaking up with your spouse — and you really hate the thought of breaking up the family business.

Unfortunately, you can’t yet really begin to assess your options for how to handle the business in your divorce. You need to know exactly what is included in the negotiations. That means making sure you and your spouse are both on the same page about the company’s value.

Never assume you know your company’s worth

No matter how well you think you know your business, you could be leaving money on the table (or throwing it away) if you don’t have a professional valuation. There are three basic ways that this can be done:

  1. The asset-based method: This pretty much operates just like it sounds. The appraiser will look at your assets — including your inventory, equipment, leases, real estate and intellectual property. They’ll figure out what has depreciated and subtract your debts.
  2. The income-based method: This looks at both the historical and projected cash flow of the business, and it can take into account changes in the market (both real and anticipated) that might increase or decrease your company’s value.
  3. The market-based approach: This method attempts to place a dollar value on your business as if it were being sold on the open market today. It looks at what comparable businesses in your industry and area have been valued at, much in the way that houses are valued through “comps.”

Once you know how to value your business (and you and your spouse agree on its worth), then you can get down to negotiations about how to divide up the marital assets. Learning more about your options can help ease your anxiety during this difficult time.