Entrepreneurs and Divorce: Determining a Value for Your Business

entrepreneurs and divorce, considering divorce, dividing a business, DuPage County divorce lawyer, family business and divorce, Illinois divorce attorney, Illinois family lawyer, professional valuations, value for your businessOne of the most challenging aspects of a divorce is determining what happens to your property. Such a determination is particularly challenging when it comes to a family business. A key aspect of this process is how the court will determine a value for your business.

Professional Valuations

Determining how much a business is worth is a very complex task. In most instances, the court will rely on experts, such as professional appraisers. The appraiser must be skilled at applying an appropriate valuation method based on relevant information about the business, such as financial statements and tax returns associated with the business. The most common valuation methods include:

  • Asset Approach - The asset approach involves estimating the value of the business based on assets and liabilities associated with the business, including both tangible assets (e.g., machines, warehouses, etc.) and intangible assets (e.g., patents, trademarks, goodwill, etc.).

  • Market Approach - The market approach involves estimating the value of the business based on what the business would be worth on the open market, for example, by comparing the business to a similar business that has been recently sold.

  • Income Approach - The income approach involves estimating the value of the business based on profits, cash flows, and other expected economic benefits, often by relying on historical records of past profits and growth.

Determining a value for your business is complicated, and experts often disagree as to what approach best suits the nature of the business in question. It is not unusual for both parties in a divorce to hire their own expert to value the business.

Dividing the Business

If the business is considered marital property (i.e., owned by both divorcing spouses) the court will divide the business after determining its value. When dividing the business, there are several options:

  • Sell the business - One option is to sell the business and divide the profits between the divorcing spouses. Such an option offers a clean break between divorcing parties, although finding a buyer for a business can take time. Additionally, selling the business may not be the most ideal option when investments in the business have not yet matured (e.g., when a product developed by the business has not yet hit the market).

  • Buy out the other spouse’s interest - Another option is for one spouse to keep the business and buy out the other spouse’s interest. This buy out may involve a cash payment, or may involve the exchange of other marital property, such as an interest in the family home.

  • Co-own the business - A third option involves each spouse owning a separate property interest in the business. In this instance they become partners. Such an arrangement may be difficult--especially when the divorce is not amicable--because it involves continued involvement between ex-spouses.

Illinois Family Law Attorney

If you are considering divorce and have questions about a business owned by either you or your divorcing spouse, it is vital that you contact a skilled Illinois family lawyer. Contact the Illinois divorce attorneys at Martoccio & Martoccio for help with these issues in in DuPage, Cook, Kane, and Will Counties.

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