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The basics of valuating a business during divorce

One of the potentially most complex aspects of any divorce is determining exactly what to do with a business. In Wisconsin, a community property state, the courts will try to divide all marital assets equally between the separating spouses. But how do you do that with a business – an asset that is constantly changing?

The first step is to figure out just how much the business is worth. Here’s a brief overview of how that happens.

Finding an expert to review the business

In order to determine the value of a business, you most likely will need an expert. Both spouses can agree to use the same expert, or ask the court to name one. In this case, each spouse usually shares the cost. One party could also choose to hire an independent expert in order to do a valuation at their own cost. A family law attorney can help find one with the proper qualifications.

Once the spouses decide on an expert, what happens next? That person must review the business records and information. That means looking at things such as:

  • Tax returns
  • Profit and loss statements
  • Payroll information
  • Sales history and forecast
  • Debts and loans

Whoever owns and operates the business will need to turn over the documents the expert requests so they can conduct a thorough, fair valuation. Also keep in mind that other assets – such as inventory or vehicles – might require another appraisal, potentially from a different expert.

What happens next

After the expert determines how much the business is worth, you can use that information during the divorce process. That figure will help guide asset division, ensuring each party receives an equitable division of the property.

This is a simplified overview of the business valuation process. In reality, determining a business’ worth can be extremely complicated. There are different ways that a business can be valued and only a qualified expert can determine an appropriate value in a divorce action. It’s important during this time to have strong legal support in order to ensure that a business valuation is done appropriately and fairly.

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