When a married couple who own a business together decide to divorce, it can lead to a complex property division process. A business valuation is an important part of the divorce settlement and it requires the cooperation and communication of both spouses.
Disclosures and professional evaluation
Both spouses must provide all business-related information to each other. This includes all profit and loss statements, financial documents, tax returns, receipts and balance sheets.
Because business valuation can be complex, it is helpful to have a qualified professional conduct it. This may include an accountant or other financial expert who can provide an independent review. It can also help resolve any concerns one spouse may have about the other spouse hiding or excluding assets from them.
There are several valuation methods the valuation professional may use. The most common approaches are known as income-based, market-based and asset-based.
An income-based approach reviews the business’s future earning capacity. A market-based approach compares the business with similar entities that have sold recently. Finally, an asset-based approach reviews the business’s assets, which can include cash, physical products and goodwill in the community, for example.
Once the valuation is complete, the spouses can include the business in the property division. This ensures that each receives an equitable share of the business.
Sometimes, one spouse may want to keep the business and may offer to purchase the other spouse’s share. An accurate business valuation can help the efficiency of their negotiations.
There is assistance available for spouses who need help with a divorce-related business valuation.