Helping You Resolve Difficult Issues In Family Law

Valuing a business during a divorce

On Behalf of | Apr 22, 2021 | High-asset Divorce

When Arizona business owners go through divorces, their companies may be considered community property and subject to division. Businesses that were launched after the owners got married will be included in the marital estate and must be divided. If one of the spouses added value to a business that was created before the marriage, the portion of the increase in the company’s worth will be divisible. Properly valuing a business is a critical part of the property division process during divorce.

How businesses are valued

Several different methods may be used to value a business. Individuals can look at comparable business sales in their area, but there may not be recent sales. Another way to determine companies’ worth is by appraising their assets and subtracting their liabilities. Completing a discounted cash flow valuation, which involves calculating the future revenue the business is likely to generate, is another useful method for valuing a company. The revenue multiplier method is sometimes used. With this calculation, analysts multiply a business’s current annual revenue by a multiplier that is specific to the industry in which the business operates. Each of these methods has advantages and disadvantages.

Dealing with the division of a business

Most people likely do not want to sell their businesses and divide the money from the sales with their former spouses. They can use the valuation as a negotiating point by offering their spouses a larger share of other marital assets or buying their spouses out of their business interests.

Business owners may want to work with family law attorneys who are experienced in handling business owner divorces. A lawyer may negotiate with the other spouse on behalf of his or her client to protect the client’s business interests.