How to Obtain a Divorce Business Valuation
Going through a divorce can present complex financial challenges, especially when one or both spouses own a business. Determining the value of the business is essential to ensure a fair and equitable distribution of marital assets. In these situations, it is critical to obtain a divorce business valuation from a qualified professional.
This article outlines the importance of business valuation in divorce proceedings. It also explains the valuation process and how to choose the most qualified business appraiser.
Peak Business Valuation is a nationally trusted business appraisal firm. We offer thorough and impartial divorce business valuations. Our valuation experts use industry-standard methodologies and deep financial analysis to ensure accuracy. Schedule a free consultation today to start the valuation process.
Why a Business Valuation Is Critical in Divorce
When a business is involved in a divorce, its fair market value can significantly change. The impact of asset division has a direct effect on long-term financial outcomes. In addition, in some states, courts can treat a business valuation during divorce as part of the marital estate, regardless of the date and length of the marriage.
There are several key reasons to obtain a divorce business valuation:
- Equitable Division of Assets: Courts require a fair distribution of marital property. A business valuation helps establish a clear, defensible value for complex assets in a marital estate.
- Financial Settlements and Support: A business valuation may influence spousal support, business buyouts, and property settlements.
- Legal Compliance: Accurate financial disclosure is essential in divorce proceedings. A professional valuation ensures transparency and reduces the risk of disputes.
The Divorce Business Valuation Process
A business valuation for a divorce process generally includes the following steps:
1. Collect Financial Documentation
When valuing a business, valuation experts like Peak Business Valuation require access to key financial records. It is best to prepare for a business valuation by compiling and organizing the financial documents beforehand. Additionally, keeping track of these documents can help you support your claim for assets you desire to keep.
Common financial documents needed for a business valuation are:
- Tax returns (3–5 years)
- Profit and loss statements
- Balance sheets
- Bank statements
- General ledgers
Accurate and complete documentation forms the foundation of a reliable valuation. Learn more at Valuing a Business for Divorce.
Reach out to speak with a trusted business appraiser today to ask any questions you have. Our team of valuation experts can also help you prepare for your divorce business valuation by helping you compile the necessary documents. Schedule a free consultation to get started below.
2. Conduct Interviews and Site Visits if Needed
If applicable, the appraiser may interview owners or key employees. Interviewing the business owner(s) helps provide context about the business’s value. If necessary, an on-site inspection can be performed. Furthermore, business appraisers take note of daily operations, ownership structure, and potential risks.
3. Valuation Adjustments including Owner-Related Expenses
Oftentimes, various expenses are included in the business financial statements. Accounting for these expenses is critical in determining a fair market value. This often includes personal expenses run through business accounts. These need to be identified and removed from the financials to reflect the business’s true profitability.
4. Financial Analysis and Evaluation of Goodwill
The business appraiser will assess both personal goodwill (value tied to an individual) and enterprise goodwill (value associated with the business itself). This distinction can affect how the business is treated in the asset division process.
5. Finalize the Valuation Report
After completing the analysis, the valuation expert prepares a comprehensive valuation report. This document includes the methods used, financial adjustments made, and a detailed explanation of the business’s fair market value.
Peak Business Valuation provides detailed, court-ready business valuation reports tailored for divorce proceedings. Our valuation team can help you learn the value of your business to have a smooth separation process. Schedule a free consultation below!
Who Conducts Divorce Business Valuations?
It is important to obtain a divorce business valuation by a certified business appraiser. Both parties and their advisors must collaborate with a qualified appraiser to get an accurate estimate of the business’s value. Business appraisers hold credentials such as:
- Certified Valuation Analyst (CVA)
- Accredited in Business Valuation (ABV)
- Certified Business Appraiser (CBA)
- Accredited Senior Appraiser from the American Society of Appraisers (ASA)
Choosing a qualified expert is essential to ensure the valuation will hold up under legal scrutiny. Business valuations can be costly and time-consuming. However, they are often required for court or mediation. It may be tempting to opt for a calculation report or online valuation, but these analyses lack accuracy and formal legitimacy. To learn more about calculation reports and online valuation tools, see Professional Business Appraisal vs Online Valuation Tool and Comprehensive Business Valuation vs Calculation Report.
Valuation Methods for Divorce Business Valuations
A professional appraiser may use one or more of the following approaches, depending on the nature of the business and the need for the business appraisal:
1. Income Approach
This approach estimates the business’s future earning potential and converts it into a present value using a discount or capitalization rate. It is suitable for profitable businesses with predictable cash flow. It also takes into account risks within the business.
2. Market Approach
The market approach compares the business to similar businesses that have recently sold. It is most effective when there are sufficient market comparables. This is one of the most common methods to value a business. To learn more about the market approach, see What is a Valuation Multiple?
3. Asset Approach
The asset approach values the business based on the fair market value of its assets. These assets may be tangible or intangible. It is often used for companies with significant tangible assets or those that are not generating steady income.
Each approach has strengths and limitations. Experienced business appraisers at Peak Business Valuation determine the most appropriate valuation approaches based on the nature of your business and the requirements of the divorce proceedings. Schedule a free consultation to speak with a valuation expert today!
Tips for a Smoother Divorce Valuation Process
When preparing to obtain a divorce business valuation, consider the following best practices:
- Engage Early: Begin the valuation process as soon as the divorce is initiated to avoid delays in settling. To learn more about timing for a divorce business valuation, see Timing for a Divorce Valuation.
- Ensure Transparency: Share accurate and complete financial data with your business appraiser. Full disclosure is critical for an objective and defensible valuation.
- Retain Qualified Professionals: Work with an experienced business appraiser and collaborate with legal and financial advisors. It is important to work with professionals who understand the nuances of divorce.
- Remain Objective: Emotional decisions can hinder the process. Focus on financial facts to reach a fair resolution.
Conclusion
If a business is part of your marital estate, it is essential to obtain a divorce business valuation. Doing so can ensure a fair and equitable division of assets. Additionally, a professional, objective valuation can speed up the valuation process and minimize losses, providing peace of mind for both parties.
Peak Business Valuation specializes in providing accurate, independent divorce business valuations. Our business valuations are tailored to the needs of attorneys, courts, and individuals. We are committed to helping you navigate this process with clarity and confidence.
To begin the divorce valuation process with trusted professionals, schedule a free consultation below.
