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How to determine the value of a business during divorce

On Behalf of | Dec 30, 2021 | Property Division

Sorting out all the property that must be divided between a divorcing couple can be challenging. It can be especially challenging when the divorcing couple owns a business together that must be divided. For that reason, divorcing couples who are also business owners should be familiar with business valuation methods for dividing a business during divorce.

  • Assets and liabilities: one method of valuation of a business is its assets and liabilities. Assets typically include all tangible and intangible property owned by the business. Tangible property includes inventory, savings accounts and all equipment necessary for the business to operate. Intangible property includes goodwill with clients, patents, trademarks and software. Anything that makes the company money is considered an asset.
  • Liabilities include anything that costs the business money. Examples of liabilities can include loans, payroll, and any other money, goods or services the business owes. In general, the total of the business’s liabilities are subtracted from its total assets to determine the value of the business using this method.
  • Income of the business: another method of valuation of a business is the income of the business. The profit of a business is determined by the income of the business minus its expenses. The income of the business, of course, is how much money it makes and the expenses include what it costs to operate the business. The balance of the income minus the business’s expenses is the net profit of the business. The income method is another method of valuation of the business.

Because dividing a business may be one of the major assets divorcing couples have to address during the property division process, it is important to value the business and to know how to do that. Understanding the property division process and family law tools to help divorcing couples with it is important to have.