Business Division: Why Is Business Valuation Important?

Whether you are a business owner or an individual married to one, you may have many questions about what will happen to the company during divorce. After all, a successful business may be one of the most valuable assets you and your soon-to-be ex-spouse own.

As with other assets, a business may be subject to division and distribution upon divorce if it is marital property ― meaning it was acquired during marriage. Even if only one spouse owned the business before marriage ― making it separate property ― a court may consider any increase in value of the business while married as marital property, particularly if the other spouse actively contributed to the growth and day-to-day operations of the business.

Given the complex nature of business division, valuation is extremely important. Not only do you need to know how much a business is worth, but you may also need to track changes in its value over time, especially if you have to distinguish between marital and separate property. And, unlike the stock of a publicly traded company, there isn't a simple chart you can look at to determine the fluctuating values of a closely held company. In most instances, a business valuation expert is needed to measure a business's worth before you and your spouse can even begin settlement negotiations.

If you have questions about business division, business valuation or property distribution in general, the experienced attorneys at the Thomas Family Law Firm, PLC, can help. We provide committed, one-on-one legal representation. Schedule your consultation today by calling 901-443-4599 or reach out to us online. While our office is in Germantown, which is just outside Memphis, we have attorneys licensed in both Tennessee and Mississippi.

Business Valuation Methods

There are three different approaches commonly used when valuing businesses during divorce:

  • Income approach: This approach typically values a business based on some form of expected income stream.
  • Asset approach: This straightforward approach compares a company's assets and liabilities to determine value.
  • Market approach: This approach compares a business to other similar business of comparable size in the same industry.

Business valuation can be an expensive and burdensome process in any divorce situation. An inaccurate business valuation can have ripple effects for years to come after a divorce. Therefore, one should always retain the help of a lawyer to ensure everything possible is done to value a business properly, including the hiring of a business valuation expert.