Choosing a Method for Business Valuation During Your Illinois Divorce

 Posted on July 07,2020 in Division of Property

The United States is known for many things, but one of the things that it is proudly known for is the welcoming and nurturing culture surrounding small businesses. According to the U.S. Small Business Administration, there were approximately 30.7 million small businesses in the country in 2019. If you are like any of the millions of Americans who own a small business, it is likely your most important and most valuable asset. This can prove to be tricky when it comes to divorce. You must determine what you will do with your company, but before you do, you will have to determine what your business is worth.

Methods for Valuation

The easiest way to deal with a business is to sell it and split the profits with your spouse. This, however, is not typically the desired route since most of the time, the business is the source of income. If you want to keep your business, typically you will pay your spouse a portion of the value of the company, but to do that, you must first determine the actual value of it. There are three basic approaches to valuing a business:

• Income-Based: This approach to valuing a business is the most commonly used method when valuing a business during a divorce. An income-based approach uses figures such as the company’s current cash flow, current expenses, and past performance to estimate the company’s future value. 

• Asset-Based: An asset-based approach takes into account the company’s tangible and intangible assets, as well as its liabilities. Tangible assets can include things such as inventory and office equipment, while intangible assets include things such as patents, trademarks, and accounts receivable.

• Market-Based: This type of approach is done by evaluating businesses of a similar size that have recently been sold. This is similar to evaluating the houses in a neighborhood when you place your house for sale. Sometimes, no other businesses that are similar have been sold or exist. Because of this, the market-based approach is the least commonly used out of the three when it comes to divorce.

Contact a Kane County Divorce Attorney 

Owning a small business can be a great personal accomplishment, but it can also be a source of stress during your divorce. If you are unsure of what you should do with your business during the division of marital property, you should speak with a knowledgeable Batavia asset division lawyer. At the Law Office of Matthew M. Williams, P.C., we can help you determine what the best course of action would be for you based on the value of your business and your specific situation. Call us today at 630-409-8184 to schedule a consultation.

Sources:

https://cdn.advocacy.sba.gov/wp-content/uploads/2019/04/23142719/2019-Small-Business-Profiles-US.pdf

http://www.smbceo.com/2019/11/19/how-to-value-a-small-business-for-divorce/