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Business valuation is an essential step for business owners in divorce.

On Behalf of | Sep 3, 2020 | Divorce

Even as many people work from home, most people think of their work life as separate from their home life. Divorce can complicate that, however. In fact, if you founded a business during your marriage or your spouse put significant work into the company, the court might consider your business marital property and divide it along with the rest of your assets.

Whether you buy out your spouse’s share of the business or sell the company and divide the proceeds, getting your fair share in these cases can depend on establishing the value of your business. How much is your business worth? That depends on the valuation method you use.

The market value approach works best in a competitive market.

Many business owners thrive on competition, and that competitive market can be an asset when establishing the value of a business. If similar companies in the area have sold recently, you can use those sale prices to estimate the value of your own business.

The asset-based approach is ideal for businesses with significant property holdings.

Does your company own large amounts of real estate, manufacturing equipment, unsold retail inventory or intellectual property? Companies that invest their profits back into the business may hold valuable assets that you should consider when determining the value of your company.

The income-based approach is often ideal for businesses with steady earnings.

If your company has a stable customer base and consistent business, the income-based approach might work well to estimate its value. Businesses with fluctuating earnings can also use their income to evaluate the worth of their business, but the method they use is more complex.

Having an updated evaluation of your business can help ensure that property division is fair in your divorce.