If you are seeking a divorce, and you or your spouse own a business, this means valuing the business. Goodwill value must also be determined when trying to value a business. We will discuss how you can value your business if you are getting a divorce. This article will assist you in splitting up the business as you move on with your life.
If you want to split up the business, you have two options. You can sell the business to a third party, or one spouse can buy the other’s shares in the business. But first, you need to determine who owns what in the business. In the state of Texas, a business can be defined as separate or community property. If the business was purchased before the marriage took place, or if it was purchased with separate funds, it will be considered separate property. This means that one spouse has claimed to the business. On the other hand, if the business was purchased during the marriage with a joint fund, it will be considered marital property. This means that both spouses have a claim to the business.
Even if the business is considered separate property, it could have community elements due to the marriage. Community elements could come from:
Whether you own the business or your spouse does, understanding if it will be defined as separate or community property is important.
Valuing a business, also known as appraising the business, can be a complex process. Because of this, it is a good idea to hire your appraiser as well as a lawyer. Make sure that both the appraiser and the lawyer are familiar with the financial statements, business tax returns, laws, and documents related to your situation. These parties can walk you through the process and make sure that valuation of the business is done correctly.
Also, an appraiser can determine the best method for valuing the business. There are a few different approaches that you can take. They include:
For more information on how to value a business, please see my articles on valuing a professional practice.
Goodwill value comes from the business’ tangible assets subtracted from the total business value. So, you must determine the business value before you can determine the goodwill value.
In Texas, it is common to further divide goodwill into enterprise goodwill and personal goodwill. “Enterprise goodwill” refers to the goodwill of the business itself. “Personal goodwill” refers to the value that an individual brings to a company. So, anything that the spouse involved in the business brings to the business is personal goodwill.
If you are going to need business valuation in event of a divorce, it is vital you contact an experienced attorney who understands business valuations and can even refer reputable experts to help you.
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