Valuing a Business for Division as a Marital Asset

Sep 03

Valuing a Business for Division as a Marital Asset

Valuing a Business for Division as a Marital Asset

Property division during a divorce is always a hot-button issue, but division is more complex if a family-owned business is the primary income generator. When the time comes for the spouses to separate their assets, their business will generally be considered property that must be valued and split. To divide the business, either one party can purchase the interest of the other, or the couple sells the company and shares the profits. In either case, the business must be valuated. Valuations are not easy and almost always require the assistance of a business appraiser.
 

What Factors can an Appraiser Consider?

In a valuation, an appraiser will review tax returns and financial statements relevant to the business. In some cases, the parties may each hire their own appraiser. There are three primary methods for determining the value depending on the nature of the business: businesses often use either the market value, income, or assets approach.
  • Market value approach: This business’ value is set by the expected price a willing buyer would pay for the business if it were listed for sale to the public.
  • Income approach: The value of a business is determined by analyzing historical data and developing projections of future earnings.
  • Assets approach: All tangible and intangible assets are tallied up and divided between the spouses. This approach requires that spouses also place 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 goodwill is. Personal goodwill is when the success of the business is primarily attributable to the efforts and reputation of one party. Enterprise goodwill is the business’ ability to survive, even if the business owners were to leave their position. 

 
If you are a business owner, contact an experienced license attorney who will be able to provide a range of possible outcomes.

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