If you own a small business, it is probably more than just the place you work. On the contrary, your company may represent years of hard work and sacrifice. Losing part or all of your business in divorce may cause you to experience a variety of emotions. It may also make supporting yourself and your family difficult.
In Kentucky, judges divide marital property pursuant to what is equitable. If you started your business during your marriage, your soon-to-be ex-spouse may claim an equitable interest in some or all of it. While you may be able to reach an acceptable agreement, you should know what your business is worth. For divorce proceedings, you may value your business in one of the following three ways.
1. Market valuation
Perhaps the easiest way to value a business is to determine its market value. If you choose this approach, you compare your business to other similar ones that have sold recently. Or, you may obtain a market appraisal from an expert who knows how much your company is likely to sell for on the open market. If you have a unique business model, though, the market approach may not be the best way to value your business.
2. Income valuation
For private businesses, valuing a company based on its income potential often makes sense. With this approach, you use current sales data to project future income. How much your business stands to make over a certain period is how much it is worth.
3. Asset valuation
Your company may have substantial assets. If you choose to value your business with the asset approach, you consider the worth of everything your company owns. Then, after subtracting liabilities, you have a realistic picture of your business’s value.
Remember, valuing your business may be more art than science. Still, if you think you are heading for divorce court, determining how much your business is worth is likely a smart idea. By understanding the three possible ways to value your company, you can better plan for the dissolution of your marriage.