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5 questions to ask about business valuation during divorce

| Mar 26, 2020 | High Asset Divorce |

One way to make divorce more complicated is by adding a shared business to the equation. In such scenarios, one or more third party professionals typically conduct business valuations. Depending on individual circumstances, divorcing couples can follow one of three routes after the value determination: one spouse can buy out the other spouse’s interest, they can sell the business or they can remain co-owners. 

While a business valuation is sometimes complex, a thoughtful approach can make the process smoother. Here are five questions to start. 

  1. How much have I put into the business, and how much am I getting out of it?

Numbers matter. Knowing how much each spouse has invested in the company can have an impact on how the appraiser calculates value. Similarly, the appraiser may also consider each spouse’s earnings from the business. 

  1. Are there any outstanding debts or legal claims?

If there are existing debts or legal claims against the business, it is good to know what kind of protection might be appropriate going forward. This is particularly applicable for the ownership transfer route. 

  1. Do I have the funds to purchase, manage and operate the business?

Sometimes, a spouse wants to buy the other spouse’s interest in the company but lacks the financial means to do so. This does not mean they cannot move forward with buying ownership, but it does change the process. 

  1. Can I realistically continue working with my spouse?

Divorce is an emotional and difficult topic. Because of this, it is less common for couples to remain co-owners after they sever marital ties. A cost-benefit analysis might be beneficial before attempting to share stakes. 

  1. What do I want to do next?

While the previous four questions will assist in finding the answer to this question, it is also a question worth asking from the very beginning. Having an idea of personal goals can help clarify the next steps to take.