When you decide to divorce, all of your marital property will be divided between you and your former spouse. When the couple owns a business, this can include their business, which will need to be valuated like some other types of assets that will also need to potentially receive a valuation. Before and during your divorce, you should know how your business may be valued.
How the business valuation process works during divorce
There are a couple of different ways that a business may be valued during the divorce and asset division process. To begin with, it is important to determine the assets and liabilities of the business. The assets generally include tangible and intangible property of the business and liabilities include the debts of the business and whatever costs the business money. It is also important to determine the business’s profit, which includes its income minus its liabilities.
There are two primary methods of calculating the value of a business, including the book value of the business and the market value of the business. The most basic definition for calculating book value is the value of the company’s assets minus any depreciation. The market approach is based on the earning capacity of the business or what an outside buyer would be willing to pay for it on the open market.
When dividing significant assets during divorce, it is important to know how those assets will be valued in addition to how they will ultimately be divided. For that reason, if you have a business that may be part of the property division process during your divorce, you should know about the different methods of valuing a business.