The value of your family business could represent a large portion of your marital assets, and it may require a professional appraisal in a divorce proceeding. The determined value could affect what you have a right to own after dissolving your marriage.
Your business’s net worth or any remaining cash may become part of your personal property. Even if you did not work at the company, California’s laws allow you to receive half of a business’s assets during your divorce if it significantly contributed to your household.
Choosing a method to determine a business’s fair market value
Typically, one of three methods can provide a court with a business’s fair market value. As reported by the American Bar Association, using either the income approach, market approach or asset approach can provide a fair value for your business. The determined value can help you negotiate a more realistic divorce settlement.
Based on the business type, you could calculate a maximum value by using the approach most suitable to its operations. An asset-based approach, for example, can provide a higher value for a business that relies heavily on expensive assets, such as real estate. If your business generates substantial revenue, the income approach can provide a more accurate determination of how much of its earnings you could receive.
Deciding on a no-ownership interest
Spouses who co-own a business may also decide to have one partner relinquish his or her ownership. Your spouse may then need to “buy out” your ownership portion of the business or come to an agreement to share its future revenue streams. It is also not uncommon to decide that selling a business and splitting the proceeds can help resolve a marital property dispute.