Valuing a Small Business During a Kane County Divorce

 Posted on August 29, 2022 in Divorce

As any small business owner can attest to, running your own company is not an easy task. This is especially true presently. Between inflation, labor shortages, and the lingering effects of the Covid-19 pandemic, many business owners are struggling to keep their businesses afloat.

Getting divorced while simultaneously running a small business is even more complicated. Business owners must determine whether their business is partially or fully marital property and address the business during asset division. To do this, they will first need to determine the value of the company. Fortunately, business owners facing divorce do not have to handle all of these complex issues on their own. A divorce lawyer skilled in business valuation and division can provide direction and personalized assistance throughout the divorce process.

Valuing a Small Business During a Divorce

Businesses can be tricky to value, but there are a few methods that divorcing business owners can use to obtain an accurate valuation. One common method is the income approach. This approach values a business based on its future economic benefits. Businesses with higher incomes and profitability are typically valued at a higher amount than businesses with lower incomes.

The second common method is the market approach. This approach values a business based on recent sales of similar businesses in the area. This is often used to value start-ups and businesses that do not have a long history.

The third and final method is the asset approach. This approach simply tallies up the total value of the business's assets and subtracts any debts or liabilities. This is often used for businesses with high levels of inventory or businesses that own property.

How to Handle the Value of the Business During Asset Division

Many businesses are considered marital property. This means that the business is subject to equitable distribution during a divorce. However, there are a few exceptions. Businesses that were started prior to marriage or businesses that were inherited are typically considered separate property. This means that they are not subject to asset division and remain the sole property of the spouse who owns them.

If the business is considered a marital asset, it can be divided in a couple of different ways. The first way is to sell the business and divide the proceeds among the divorcing spouses. This option may be attractive to divorcing couples with significant joint debt or those who want a fresh start. However, many business owners have poured so much time, energy, and resources into their company that selling it is out of the question. Another way to handle a business during divorce is for one spouse to buy out the other's interest in the business. This can be done through a lump sum payment or an installment plan. Although it is certainly difficult, some divorcing couples choose to continue running the business together.

Contact Our Kane County Business Valuation During Divorce Lawyers

If your marital assets include business interests ending your marriage, contact the St. Charles divorce lawyers at Goostree Law Group to get the help you need. Call us at 630-584-4800 for a free consultation.

Source:

https://www.investopedia.com/terms/b/business-valuation.asp