Even if your spouse has taken a hands-off approach to your company, he or she may have an ownership interest in it. Consequently, unless your company is separate property, you may have to buy out your husband or wife to secure exclusive ownership after your divorce.
Valuing a business for divorce purposes can be difficult. After all, you and your spouse may want to reach vastly different conclusions about how much the venture is worth. While working with independent accounting professionals may be prudent, your business’s value may depend on the valuation method you apply.
Your company’s assets
With asset valuation, you add your company’s tangible and intangible assets together. These may include buildings, vehicles, intellectual property, stocks, options, inventory, machinery, land and anything else your business owns. After adding the value of assets, subtracting liabilities gives you a working figure of your company’s worth.
Your company’s income
With income valuation, you focus on your business’s revenue. That is, you determine the worth of your business based on its total income. If you use this valuation method, you should include income from both the sale of goods or services and your company’s investments.
Your company’s market value
With market valuation, you use comparable business sales to calculate the worth of your business venture. To reach a meaningful valuation, you must find recent sales of companies in the same industry and of a similar size. You also must find comparable businesses in roughly same location as your company.
If your company has a one-of-a-kind business model or is in an isolated area, market valuation may be useless. Consequently, before you choose market valuation of another valuation method, you must carefully weigh the advantages and drawbacks of each approach.