When you are going through a divorce, financial and property considerations are often among the most complex elements of the process. Dividing marital assets can be intensely personal, as well as extremely confusing, depending on what your marital estate includes. For example, if you and your spouse bought a particular piece of furniture, you may both have a sentimental attachment to it and deciding who should get to keep it may cause an argument. However, if you or your spouse own a business—or part of one—determining how those interests are to be handled in divorce may be much more challenging.
Proper Valuation Matters
To ensure the entire process of dividing property is completed equitably and in accordance with the law, you will need to establish the value of the business interests to be included in the marital estate. In fact, a business valuation is important even if the company is non-marital, since the non-marital assets of each spouse must be taken into account in equitably dividing the marital assets.
There are several commonly accepted methods of completing a business valuation. Each involves a different philosophy of business analysis, and, while none is objectively superior to the others, the approach chosen will be based on how your business valuator analyzes your company:
- Asset-Based Valuation: This type of valuation is a relatively black-and-white determination, which considers all of the company’s assets and liabilities. In essence, this approach tries to estimate how much it would cost to build a new business to the level of your existing business. However, much of your company’s value may lie in proprietary ideas and customer service, concepts which may not translate well onto a balance sheet.
- Market-Based Valuation: A market-based business valuation is, in many ways, similar to private, residential real estate appraisal. This approach seeks to establish a price that a buyer would be willing to pay and that a seller would be prepared to accept, based on available market data of similar businesses in similar industries and areas. The downside to a market valuation is that it, again, may not sufficiently account for many of the elements that make your company unique.
- Income-Based Valuation: Sometimes known as the earnings multiplier method, this approach considers your business’s performance history and industry standards to create a reasonable projection of future revenues. This can, of course, be very complicated and forecasts do not provide you with a definitive determination of revenue/value, so there are risk factors that must be taken into account.
Putting It All Together
In many cases, a business valuation will combine the methods listed above to provide a more accurate financial picture. During your divorce, however, you or your spouse may not necessarily concur with the conclusions reached by a business professional hired by the other party. At Bochte, Kuzniar & Navigato, P.C., we understand the importance of working with industry experts that you and your spouse can trust to provide accurate, objective valuations of your business interests. To learn more about how we can help you through the divorce process, contact one of our experienced Kane County family law attorneys today.