If you are getting a divorce and you own a business with your spouse, you need to figure out what you are going to do with the business. The first thing to do is to value the business, and there are a few common ways to do so.
Once you have a good idea about how much the business is worth, you can sit down with your soon-to-be ex-spouse and discuss the best options for dealing with it.
Methods of valuation
According to CO by the U.S. Chamber of Commerce, there are three common ways to determine a business’s current worth:
- Market value approach – This is the most popular method, and it compares your business to similar ones that have sold recently.
- Asset-based approach – With this approach, a valuator adds up all the assets and subtracts the liabilities from the total.
- Earning value approach – This method evaluates the business’s ability to produce wealth, either based on past earnings or by projecting future earnings.
Some valuation methods are better for certain types of businesses than others. Oftentimes, a valuator will combine all three methods to get a more accurate value.
Options for dividing the business
According to the American Bar Association, one option for the divorcing spouses is to keep the business and remain co-owners. Most couples do not choose this option due to the psychological and emotional challenges involved.
A popular option is for one spouse to purchase the other spouse’s share of the business. If neither spouse wants to own the business outright, or if money is an issue, a third option is to sell the business to a third party and split the profits.