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How is a business valued in a divorce?

If you own a business, and you are getting divorced, you may have a variety of concerns and questions related to how your divorce may impact your business. It is important to have as many answers to those questions as possible as you begin the divorce and property division process and begin to assess the value of business assets.

There are different approaches to valuing a business and business assets in a divorce situation. Different states follow different approaches which can include fair market value or fair value and it is important to know what definition of value is used in your state. There are a number of complexities to the market value approach to watch out for and to be familiar with so it is important to have knowledgeable guidance throughout the process. Income-based valuation methods, as opposed to market-based valuation methods, such as the discounted future earning methods of valuation, are a method that may also be used to determine the value of a business, however, this method is not used in California because it is viewed as too speculative. Additional methods may be utilized as well.

There can be challenges to each approach and there can also be a variety of complexities to take into account such as personal expenses disguised as businesses expenses and many others. It is also important to consider double dipping when evaluating the value of the business and of the compensation received because inequities can result if the same assets are being valued twice for purposes of spousal support or other purposes during divorce. The same asset should not be counted twice for property division and support award purposes.

During the divorce process there are many different considerations and concerns. To help protect your interests, it is best to understand how a business and other assets may be valued for property division purposes, as well as other purposes, during the divorce process.

Source: Integra International, "Top Five Issues When Valuing a Small Business for Divorce," Stacey D. Udell, April 29, 2012

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John T. Chamberlin, Attorney at Law
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