When a couple divorces, their shared property, income, and assets are usually divided between them. This can include a business that the couple created during their marriage or one that one of the spouses owned prior to the marriage, but continued to build while he or she was married. In many cases, each partner may have contributed at least something to the business and in some, it could have been both partners’ sole source of income.
Every business is unique and there is no uniform way to divide a jointly-owned venture between two people. This is why it is important to educate yourself about business valuation and work with an experienced divorce attorney who has handled such divisions before.
Factors to Consider During Valuation
There are four important factors that come into play in a business valuation. They are:
- The business’s debts and its assets;
- The date of the business’s valuation;
- The business’s income; and
- The best formula to use to determine the business’s value.
The court does not make decisions about jointly-owned businesses without help from outside sources and considerable evaluations of the individual properties. Usually, an experienced third party, such as a successful local business owner or a business appraiser, examines the business to help the court determine the best way to approach the business’s division. There are a few standard formulas that can be used to determine the best way to evaluate a business’s value.
The asset approach adds all of the business’s assets, subtracts any depreciation that has occurred, and reports the resulting sum as the business’s monetary value. It is straightforward, but doesn’t take the business’s relationship with its customers or projected future earnings into consideration.
The income approach looks at the money coming into the business and bases its evaluation on that amount. It factors in projected earnings, opportunities, and interest as well as depreciation and amortization for the company.
For divorcing couples who have opted to sell their business, the market approach is usually the way to go. It compares the business to other similar companies and evaluates the current state of the market, the business’s relationship with customers and employees, and variables that can affect the business in the future.
Options for Business Owners
Talk with both your attorney and your former spouse about your future plans for the business. You might plan to sell it, close it, or continue to operate it alone. All of these are viable options, but they can play into the divorce settlement. Continuing to operate a jointly-owned business as a single owner could mean having to buy out your spouse’s financial interest in the company. Make sure you, your spouse, and both of your attorneys are clear on your and your spouse’s intentions for the business following your divorce.
Divorce Attorneys Can Help
The divorce process can be long, stressful, and heartbreaking. When you have worked hard to build a business, it can be surreal to see it divided up or sold off while you are working through your divorce from your partner. Our team of Illinois family law attorneys at Kathryn L. Harry & Associates, P.C. can help you make this process a little bit easier by advocating for you through the settlement process. Let us bring our insight and knowledge of the divorce process to your case. Call our firm at (877) 889-4515 to discuss your options as a divorcing business owner today.