How to Appraise the Value of a Business in a Divorce

Sun 3rd July, 2022 Family Law

When one or both spouses own a small business, it is often one of the most significant assets in the marriage. But determining exactly how much the business is worth in a divorce can be tricky, and there are many ways to appraise the value of a company that may provide very different outcomes in a divorce. At the Law Office of Bradley S. Sandler in Beverly Hills, our experienced California divorce lawyers have the experience you need to properly value the business interests in your divorce case along with handling all other issues that may arise throughout the process. To learn more, call or contact our office today to schedule a consultation.

Why Proper Appraisal is Important

It is critically important in a divorce that a business is valued properly, as it can impact many different aspects of a divorce case. In a community property state, spouses split marital assets equally, so if one spouse wishes to retain their business interests, it could mean that the other spouse walks away with more from the marriage if the company interests are appraised at a higher value. The value of business interests can also impact how much one spouse may pay or receive in spousal support as well as alter the amount of child support owed in a case.

Asset Valuation

The first method of appraising a business is through asset valuation. This method is the simplest, which takes the assets of the business and subtracts the liabilities, giving a final value of the company. This can include both tangible and intangible assets and liabilities; however, it does not take future items into account.

Market Valuation

The second valuation option is market appraisal. This option works similarly to valuing residential real estate, where the appraisal is based on the value of comparable businesses. However, these companies should be of similar size, in the same industry, and if possible in a similar geographic area. As such, this method can be difficult if there are no comparable businesses to this company.

Income Valuation

The final option for valuing a business is the income valuation approach. This is the most complex method of valuation but is also often one of the most accurate. Income valuation uses historical business data along with algorithms to determine cash flow and estimate profits in addition to predicting future business in order to arrive at a current value for the business. To learn more about which method may be best for your case, talk to our office today.