Business Valuation in Divorce

If you are getting a high-net worth divorce, negotiating a fair divorce settlement will be one of your top priorities. New York is an equitable distribution state, which means all marital assets are divided in a fair and equitable matter, which unlike community property states, does not necessarily mean “equal.”

If you or your spouse own a business, it could be one of the most valuable assets in the marital estate, if not the most valuable asset. However, dividing a business in a divorce is nothing like dividing a simpler asset, such as an IRA or the marital residence. With a home for example, if you and your spouse disagree on its value, all you have to do is order an appraisal to determine the home’s value.

By its nature, dividing a business is more complicated. To protect your best interests, it is wise to hire a business valuation expert and other professionals to accurately determine the value of the business and the best method of division.

Is the Business Marital Property?

The first task is to determine if the business is separate or marital property. Next, it’s important to ask the following questions:

  • What belongs to the business?
  • What is the value of the business’ assets?
  • What are the company’s liabilities?
  • What is the business’ monthly and annual income?
  • What formula should be used to determine its value?
  • What is the valuation date?

You and your spouse can decide what to do with the family business. You can choose to sell it and split the proceeds. You can continue running the business as partners if you get along well. Or, if you prefer to keep the business and your spouse wants out, you can offer to buy your spouse out their interest in the company. However, it’s impractical to make a decision until after the net value of your business is determined.

If you are getting a divorce and own a business, we’d be happy to explain the methods for determining a business’ value, such as the income and market approaches. In any case, we suggest valuing your business as soon as possible so you can accurately account for profits, debts, and income sources close to the divorce date.