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Three ways to valuate a business for divorce purposes

On Behalf of | Jun 24, 2022 | Property Division |

Marriage dissolution can be a financial endeavor that is more costly than you hoped. The process in Arizona is deceiving, too, because our state’s recognition of community property makes it seem like marital property is simply divided in half and then the parties go their separate ways. Although that may be true to a certain extent, these matters can be complicated by a number of legal nuances.

This is especially true if a business is involved in the divorce. While questions may be raised as to whether the business remains outside of the community estate or how much of an ownership interest your spouse takes in the business, another major focus is how the business’s value is calculated.

Three common approaches to business valuation

Without a clear picture of the business’s value, you can’t make a strong argument for the compensation that you’re entitled to from it. You could also put yourself at risk of getting less compensation than you deserve. Therefore, you’ll want to consider whether one of these valuation approaches is best for your set of circumstances.

  1. Income approach: This method tries to anticipate future profits while looking at current cashflow to provide a current value. This approach may be the most accurate and preferred method, but it’s also the most complicated, which means that you may end up facing a lot of push back from the other side.
  2. Market approach: This approach bases the business’s value on the recent sale of comparable businesses in the same geographic region. This approach can give you a good indication of what the business is worth, but the problem is that it’s often hard to find comparable businesses that allow you to utilize this approach. It can be difficult, too, to agree on what criteria renders another business comparable to yours.
  3. Asset approach: Here, you simply calculate the value of the business’s assets and use that figure as the basis of the business’s value. Liabilities will be taken into account, too, to ensure that a clear picture of the business’s financial standing is obtained. This approach may be appealing to those who can’t use the market approach and the business is financially struggling, thereby making the income approach less favorable.

There are many approaches to business valuation. So, as you navigate your case, you should discuss each of them with your attorney to determine which approach is best for you.

Make sure that you’re fully informed

Although an expert in business valuation may be able to provide you with a clear sense of a business’s worth, a lot of that opinion is going to be based on the business’s records. Therefore, you’ll need to do everything you can to ensure that you have access to complete and accurate records. If the figures look off, then you might want to consider engaging a forensic accountant. By doing so, you might be better positioned to determine if the business’s liabilities have been inflated or if assets have been hidden.

Don’t let yourself be taken advantage of in your divorce proceedings

The outcome of your divorce and its corresponding property division can affect your financial stability for a long time to come. Therefore, you’ll want to take a comprehensive and aggressive approach to your case to ensure that you’re getting a fair outcome.

We know that can be a daunting thought, but you don’t have to try to navigate the complexities of your case on your own. Instead, an attorney who is well-versed in this area of the law can help you gather the evidence and craft the compelling arguments that you need to position yourself for success. If that kind of representation sounds like something that would be beneficial to you, then please continue to consider your advocacy options.