How to Value a Business for Divorce

The first step in valuing a business during divorce is identifying whether the business is considered marital property, separate property, or a combination of both. In many cases, a business started or significantly grown during the marriage is treated as a marital asset. Even if one spouse owns the business, the other spouse may still have a claim to part of its value if marital time, money, or labor contributed to its growth. Understanding how your state classifies property is essential, as it influences how the business will be valued and divided.

Gather Complete Financial Documents

Accurate business valuation depends on thorough financial documentation. This typically includes tax returns, balance sheets, profit and loss statements, bank records, payroll reports, and accounts receivable or payable. The more complete and transparent the financial information, the easier it is to determine a fair value. Providing full documentation also helps prevent disputes and reduces the likelihood of delays during the divorce process.

Use Professional Business Valuation Experts

Because valuing a business can be complicated, most couples choose to hire a professional business appraiser or valuation expert. These professionals specialize in analyzing financial records, market trends, and operational data to determine an objective value. They also help eliminate bias and ensure the valuation meets legal standards. In some cases, each spouse hires their own expert, while in others, the couple agrees to use a neutral appraiser. The complexity of the business often determines which approach is best.

Understand the Common Valuation Methods

Business appraisers typically use one or more standard methods to determine value. The income approach looks at the business’s expected future earnings. The market approach compares the business to similar companies that have recently been sold. The asset approach evaluates the company’s tangible and intangible assets, such as equipment, inventory, and goodwill. Each method provides unique insight, and the final valuation may use a combination to paint a complete picture of the business’s worth.

Consider Personal Goodwill Versus Business Goodwill

Goodwill refers to the intangible value of a business, such as reputation, customer relationships, and brand strength. In some cases, goodwill is tied to the business itself, while in others it is tied to the personal reputation or skills of one spouse. Personal goodwill is often excluded from marital property, while business goodwill is included. Distinguishing between the two can significantly influence the business’s valuation and how much each spouse receives.

Plan for Buyout or Division Options

Once the business value is determined, the couple must decide how to divide that value. Common solutions include one spouse buying out the other, selling the business and dividing the proceeds, or allowing both spouses to retain ownership. In most cases, business buyouts are preferred because they allow the business to continue operating without disruption. A structured payment plan may also be used when a lump sum is not possible.

Valuing a business for divorce requires patience, transparency, and professional support. By understanding the key steps and methods involved, couples can make informed decisions that lead to a fair and balanced outcome while protecting the future of the business.