If you own a business, protecting it often takes top priority as you consider your approach to the financial aspects of an impending divorce. If your business or any part of it is marital property and therefore subject to division, a comprehensive and accurate valuation is essential.
In some cases, the divorcing spouses may agree on a financial expert to perform the valuation, while in others, each party retains a separate expert. The expert not only assesses the current value of the business but also projects future income, which may become relevant to other subjects of the divorce negotiations, such as spousal support.
Fair market value
Typically, courts want to know fair market value. Common starting points for considering value include value of inventory and assets, extent of liabilities, current and projected income, extent and stability of customer base, the type of business and the general forecast for this type of business, and geographic area. Depending on the specific situation, other factors could influence value as well.
Key man discount
Valuation commonly also includes applying discounts after considering the above factors. The key man discount looks at the respective value each spouse brings to the operation of the business. The idea is that someone who plays a major role in building and running the business brings value. With this person, the business is worth more; without him or her, it is worth less. Determining who fills this key person role and how much it affects the business’s overall value can be important when considering what to do with the business in the course of property division. Other discounts may apply in some situations.
Prioritizing your business
Knowing the value of your business as well as its marital and separate portions can help you find a firmer foothold as you approach negotiations and, potentially, litigation. Most business owners do not want to just sell the business and split the proceeds. They want to keep the business they have built. While steps such as including relevant provisions in a valid prenuptial agreement can make things easier for you, if you do not have such an agreement, you can still have acceptable options.
