Before a business can be divided in a divorce, it must be valued. This can be a particularly complex process, which can become even more challenging depending on the type and size of the business involved. It is critical to understand the varieties of business valuation methodology and how they work prior to moving forward.
3 Methods For Valuing A Business In A Divorce
The valuation method chosen will depend on multiple factors, not the least of which is the type of business. A small sole-proprietorship may require a different valuation method than a corporation with a presence in multiple states along the East Coast.
The three most common methods for divorce business valuation are:
- Asset-based approach: This method values a business based on its assets, minus its liabilities.
- Income-based approach: This method values a business based on its likely future earnings, calculated based on past earnings.
- Market value-based approach: This method values a business based on the sale price of similar businesses that have sold recently.
While these are the three most common methods of business valuation, they are not necessarily the only methods. Further, it is not uncommon to use a combination of the above methods. Within each of these methods are a variety of sub-methods. For example, there are a several ways to go about the income-based approach to business valuation.
Business owners going through a divorce can benefit from working with an experienced attorney who can bring in a trusted business valuation expert. The two can work together to determine the value of the business before creating a strategy for dividing the business according to Connecticut’s property division laws.