Property division during the divorce process can be overwhelming which can be especially true if the divorcing couple owns a business together and that business interest will need o be divided during divorce. To help, it can be useful for the divorcing couple to understand the different approaches for valuing their business during divorce.
The asset approach
The asset approaches adds tangible and intangible assets of the company and then subtracts any liabilities of the company to determine its value. This can be a complex process that includes valuing computers and vehicles of the company, as well as harder to value assets such as inventory or office equipment.
The income approach
The income approach to valuation of a business focuses on the revenue of a business and uses its past earnings to predict what its future income will be. Income is typically defined as the total value of proceeds of all goods and services that have been sold by the business. This approach focuses on projected cash flow and profits of the business and is the most common of the three approaches for valuing a business during divorce.
The market approach
The market approach focuses on an assessment and evaluation of other businesses of a similar size that have been sold recently and what they were sold for. Because it can sometimes be challenging to find appropriate comparisons, this method of valuation can itself be challenging and is the least common of the three valuation methods for valuing a business during divorce.
Make an informed decision
Deciding what to do with a business during the divorce process can be difficult. There are several different options but a good starting point is to value the business. For that reason, divorcing couples who will need to address what to do about their shared business during divorce should be familiar with valuation options up front.