How can you valuate your business for a divorce?

On Behalf of | Oct 3, 2022 | Family Law |

The company may be your biggest asset if you and your spouse are business owners. During a divorce, you must consider all of the property and assets you own, including the company. How to handle the business is a personal decision to navigate with your former spouse. Some couples sell the company and split the profits, while others may include one spouse buying the other.

Before you can decide what to do with the asset, you need to understand the overall value of your business. According to the U.S. Chamber of Commerce, you require a business valuation to determine the economic value of your business.

How to determine the value of your company based on assets

An asset-based approach is one of the easiest ways to evaluate your company. In the asset-based approach, you take the sum of all your investments. Look to your company’s balance sheet, add all of your business’s assets, and subtract the liabilities.

Another way to use asset-based valuation is to determine the liquidation value of your business after you sell all of your assets and pay off your liabilities.

How to determine the value based on your earnings

Another way to split the assets involves looking at the earning value of the company and how it produced wealth for you and your spouse in the past and how it may produce it in the future. You can look at past earnings or you can look at discounted future earnings. You use a capitalization factor to multiply your past earnings.

When splitting the value of your business, you can also look at the market value and determine what the company could sell for.