Business Valuation: An Essential Step for Many Business Owners in Divorce

Entrepreneurs and business owners all make significant investments in their business. This can leave them wondering how a divorce might impact those investments and the future of their company. One key step for business owners and their spouses is valuing the business.

What Might Happen to the Business?

Under Arizona law, courts divide a couple’s jointly-held property — called community property — according to what is “equitable.” If the court determines that your business is community property, you and your spouse will divide stake in that business just as you would equity in your home or stock in your investment portfolio. Depending on your long-term goals, one spouse may choose to buy out the other’s share of the company, they may sell the business and divide the proceeds, or they may continue as co-owners.

What Methods Might You Use to Establish the Value of Your Business?

No matter what you choose to do with your business during divorce, receiving your fair share of property may depend on knowing the value of the company.

One method you might employ when valuing your business is a market-based approach. This method may examine the sale of similar businesses in the area to determine what the business might be worth in a sale. While this method can offer insight into the price your business might receive in a sale, it also depends on the existence of recent comparable sales.

Another potential method is the asset-based approach. This method uses the worth of a company’s assets — including intangible assets like intellectual property — to determine the company’s worth as a whole. This can be a good option for companies that have made significant investments in inventory, production equipment or other key assets for the business.

A third method that business owners might employ is an income-based method. Income-based methods use various calculation approaches to estimate a business’s future income and its potential value to its owners.

Knowing the value of your business can provide you with essential information for building your strategy during property division and protecting your financial future.