Valuing a Business for Division as a Marital Asset
Property division during a divorce is always a hot button issue. It becomes even more complex when the primary income for the family comes from a business. The business is generally considered property that must be divided whether the business is a retail store or a professional practice business division.
The division can be handled in several ways. For example, one party can purchase the interest of the other or the business can be sold and the profits divided. In order to determine the share each person has in the business, the monetary value of it must be determined. This is not an easy thing to do and almost always requires the assistance of a business appraiser.
Factors an appraiser considers in valuing the business
The appraiser will review tax returns and financial statements relative to the business. In some cases, the parties each hire their own appraiser. There are three major methods for determining the value depending on the nature of the business:
- Market value: This is the expected price a willing buyer would pay for the business if it was listed for sale to the public.
- Income approach: The value is based on the business profits and projections for its future income based on the review of historical data.
- Assets approach: All tangible and intangible assets are tallied up and divided between the spouses. This includes placing a value on goodwill.
What is Goodwill?
There are two types of goodwill: personal and enterprise. In Texas, courts generally do not consider personal goodwill as marital property, however enterprise good will is. Personal goodwill is when the success of the business is primarily attributable to the efforts of one party. Enterprise goodwill is attributable to the ability of the business to survive even if the business owners were to leave the business. Find out everything you need to know about Property Division.