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How to arrive at a value for your business ahead of your divorce

On Behalf of | Sep 29, 2021 | Divorce

Settling a divorce involves you and your spouse making some tough decisions, especially about property division. One of the most challenging property division issues arises when you try to hone in on a family business’s value.

How to arrive at your family business’s value

Determining the value of tangible business assets such as an office building, computers, or other technology or furniture generally isn’t hard to do. The same can’t be said about rarer, abstract assets, such as intellectual property (IP) rights. A client list or a special recipe are examples of IP rights. It’s also hard to put a price on existing partnerships, brand recognition, community trust and reputation.

Business owners who are divorcing should call in an appraiser to help them sort out valuations of business assets. First, let any appraiser you hire know why you’re having them perform an appraisal. The reason that you give them will often dictate which approach they use in determining your company’s value.

For example, appraisers tend to assign higher values to businesses that they’re appraising in preparation for selling it to an investor. Appraisers generally assign a lower market value price to companies they appraise for tax purposes. The date on which the appraisal occurs can also have an impact on the appraiser’s assigned value. This call greatly affect your property division discussions during your divorce.

How your company’s appraisal can affect your divorce

Spouses generally agree to do one of three things when they have a joint business and are divorcing:

  • One spouse buys out the other’s stake in the business, generally by retaining a larger share of other property (such as the home).
  • Spouses mutually agree to sell off the business to a third-party.
  • Both spouses decide to continue working as business partners.

You will need an appraisal no matter which option you ultimately choose. Carefully weigh the pros and cons of each option with your lawyer before deciding which is best for you.