When couples get divorced, if one of them owns a business—or if they are co-owners together—then they may have to do a valuation of their business. After all, it could qualify as a marital asset. This means it needs to go through property division with everything else that the couple owns, so determining the value is critical.
But how should this be done? There are a few different tactics that can be used. Below are three examples.
1. The share price
First of all, you can use the market capitalization tactic. This works for publicly traded companies that have shareholders. Essentially, the business is worth as much as the total number of shares times the share price. While this can be helpful for larger companies, many small companies are not publicly traded, so this is not possible.
2. Assets and liabilities
Another tactic is to look at all of the assets that the business owns. In this sense, owners need to consider tangible assets, like real estate locations or inventory the business has on hand. They then subtract the liabilities, such as debt from business loans, to figure out the full value of the assets the business holds.
3. A growing value
Finally, it can be important to consider if the business is growing in value over time. By looking at the rate of this growth, it’s sometimes possible to predict what the company will be worth in the future. If the company’s value has been going up annually, then much of its value to the owners may lie in the projected earnings.
It is very common for couples who are getting divorced to disagree over the valuation of the business, and this can be a complex process. It’s important for them to be well aware of their legal options.