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3 common ways to value a business for divorce purposes

On Behalf of | May 26, 2021 | Divorce |

Not only does owning a business in the Lone Star State allow you to achieve the American dream, but you also take great pride in providing quality products or top-notch service to your customers. If your venture is part of the marital estate, though, you probably must address its future during your divorce.

Your soon-to-be ex-husband or wife may have an ownership interest in your company. While you likely have some options for securing exclusive ownership of the venture during settlement negotiations, you must know how much it is worth. For divorce purposes, three valuation methods are popular.

1. Market-based valuation

Market-based valuation is arguably the simplest valuation method, as it does not require an in-depth analysis of your business’s financial records. With this method, you look for recent sales figures of comparable businesses. If you can find sales data on a similar business, it may give you a ballpark idea of your company’s value.

2. Asset-based valuation

Asset-based valuation is also fairly straightforward. With this approach, you add together the value of the inventory, equipment, buildings, fixtures and other assets your business owns. If you choose this method, you should not forget to account for depreciation.

3. Income-based valuation

Income-based valuation uses your business’s revenue stream to calculate its worth. With income-based valuation, you use past revenue to predict future cash flow. This valuation method may require you to make some assumptions with which your husband or wife may disagree.

Because your business may be one of the more valuable parts of your marital estate, calculating its worth is likely to be important for you and your soon-to-be ex-spouse. Consequently, you can probably assume your husband or wife will undertake an independent business valuation to compare with yours.