Because you enjoy your business and rely on it for income, you want to continue to operate it after your divorce concludes. Still, if your venture is part of the marital estate, your soon-to-be ex-spouse may have a legal claim to some or all of it.
You may be able to buy out your spouse’s ownership interest or surrender something of value in exchange for exclusive ownership. Either way, you need to know the value of your business venture. For divorce purposes, three valuation methods are popular.
Market valuation projects the worth of your business by how much it would likely fetch during a sale. If you opt for this approach, you need to research the sales of comparable businesses. Nevertheless, if you have a hard-to-sell business or a unique business model, market valuation may not give you a reliable estimate.
Asset valuation estimates the worth of your business by adding the value of everything the venture owns and subtracting outstanding debts. Whether this valuation method is the right one for you likely depends on your goals. Still, if the business has few assets, asset valuation may be beneficial to you.
Income valuation uses existing accounts receivable and future income projections to calculate the worth of your business. If your business operates in the red, income valuation may give you an advantageous low-ball estimate. On the other hand, if your company brings in considerable revenue, income valuation may be better for your spouse.
Whether you use market, asset or income valuation, you may reach drastically different conclusions about your business’s value. Therefore, choosing the method that is most favorable to you may help you secure ownership of your business.