What Is Business Valuation?

Part of getting divorced is having to divide up marital assets between you and your spouse. When determining which spouse receives which asset, and how much one spouse needs to provide the other in exchange for keeping certain assets the Court strives to obtain an equitable distribution of the marital assets and debts between the spouses. Dividing the parties’ bank accounts and home as part of a divorce are common place and usually pretty straight forward. However, dividing up your business interests might be a more difficult endeavor and can sometimes require a professional business valuation.

Separate Assets & Marital Assets

If you or your spouse created or formed a business during your marriage, you or your acquired an interest in a business during your marriage, or marital funds were utilized during your marriage to improve upon a business created prior to your marriage then the court may consider the business or a spouse’s interest in the business marital property. If considered marital property, the business interest would be subject to division by the court during the divorce process. This could mean that the spouse who is awarded the business may be required to “buy out” the other spouse in consideration of the receiving the business in the divorce. In order for the court to determine what the cost of the buy-out may be, the court will be required to determine the fair market value of this business interest.When determining if a business asset should be categorized as separate or marital, the court will consider factors such as (1) when the business was created or the business interest was acquire in relation to the date of your; (2)the source of the funds used to start the business; (3) the value of any financial and labor-related contributions to the business that have been given by either you or your spouse during the marriage; and (4) the increase in the value of the business, the business stock or equity, and its capital and assets.

Valuing Your Business

Three common approaches used to determine the value of a business are the asset approach, the market approach, and the income approach.

  • The Asset Approach: Determines the value of the business based upon the assets and liabilities held by the business.
  • The Market Approach: Calculates the value of a business by comparing it to similar businesses that have been sold in your area.
  • The Income Approach: Uses historical information and predicted expected cash flow, profits, to determine the value of the business.

Each valuation method can yield extremely different results, with some methods being better utilized for certain types of businesses more than others. Knowing these valuation methods, and the financial professionals and experts that are best suited in determining the value of the business involved in your divorce is crucial to the success and outcome of your case. Our attorneys have the knowledge and established relationships with these experts to ensure that the correct valuation method is being utilized to maximize the benefit of the business valuation for your particular case.

Do you need assistance with a divorce involving a business? We can help. At Pedano, O’Shea, McGavic & Hogenmiller, LLC, we are dedicated to providing skilled and affordable legal representation across Missouri. Let us put our experience to work for you.

Call (636) 742-1418, or contact our Chesterfield team of divorce lawyers to get started on your free case evaluation today.