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How are businesses valued during a divorce?

On Behalf of | Jan 29, 2021 | Divorce

During a marriage couples in Kentucky may acquire various property and assets. The types of assets can vary greatly as well. People may own homes, have checking and savings accounts, retirement accounts, investment accounts, vehicles, vacation properties and others. One other type of asset, which people may not always think of as an asset, is a business. These are unique assets though as the couple’s income may also be tied up in the business, but the business by itself may also have value.

This means that the business or at least the value of the asset needs to be divided during a divorce. In order to do this though, people need to know the value of the business. This is not always easily ascertained though. These are not like a financial account that provides monthly or quarterly statements for the value. People will generally need to have a business appraisal of the business completed.

Business valuation methods

There are different ways that business appraisers value businesses though. One is to add up the value of all the assets of the business and subtract any debts and liabilities. Another is to determine the total sales of the company each year and determine how much companies earning similar amounts are being sold for in that area. There is another method which uses earnings multiples which use formulas based on the price to earnings ratios and projected earnings of the business. There are also cash flow analyses. People could also use a business broker to compare the business to other recent business sales in the area.

Many couples own businesses in Kentucky and if the couple goes through a divorce it will need to be divided. The first step is to determine the value of the business. This can be a complicated process by itself, but after that is done the couple will need to divide that value. This can create more complications in figuring how that will be done. Consulting with experienced divorce attorneys could be beneficial.