Valuing a Business in Divorce

 Posted on April 09, 2015 in Divorce

Owning your own business is a dream that many individuals share. The sense of building something from the ground up and being your own boss can bring great feelings of accomplishment to an individual or couple who chooses this career path. If you are a business owner considering filing for divorce, you might be wondering how your divorce will affect your business. Your business is an asset and may be divided as such during your divorce if you do not have a prenuptial agreement in place stating that you retain all control of the business and its profits.

The division of a business in divorce is determined by its current health and the couple's plans for the business after their divorce. Some couples opt to sell their businesses as part of their divorce settlement and share the profits. In other cases, one partner buys out the other and continues to operate it alone. Still in other cases, the couple chooses to continue to operate their business together after they divorce. No matter what a couple chooses to do with their business after their divorce, the court must determine the following about the business:

• Its current income;
• Its debts and assets; and
• The most effective method for placing a monetary value on it.

Determining a Business' Value

The court must determine the couple's business' monetary worth in order to fairly divide it among them. In Illinois, marital assets are divided according to a principle known as equitable distribution, which means that assets are divided among divorcing couples according to the amount of personal and financial investment each party put into these assets.

There are three methods that may be used to determine a business' value: the market approach, the income approach, and the asset approach. With each approach, certain aspects of a business' total worth carry the bulk of the weight in determining its value.

• The income approach requires appraisers to look at the amount of money the business currently owns and the amount it can potentially earn in the future. This includes projected expansion and amortization as well as any depreciation that can occur.
• With the market approach, current market trends are considered when determining a business' value. This approach also incorporates the business' current standing in its community and with its clients as well as its financial health in comparison to the health of peer businesses.
• The asset approach subtracts the business' debts and depreciation from its total income and assets to come up with a sum representing its value. This approach can quickly determine a company's value, but is not sufficient or appropriate for all companies.

Experienced Divorce Attorneys in Kane County

Goostree Law Group can help you work through your divorce by providing high quality legal advice and representation. If you are currently going through a divorce or you plan to file for divorce in the near future, contact our firm to discuss your situation with one of the experienced Kane County divorce attorneys at our firm.