When business owners decide to get divorced, the company may be one of the most expensive assets that they own. It is very important to get a proper valuation as it goes through property division.
This is also true in cases where one spouse is a business owner, and the other is not. That spouse may still have a claim to a portion of the business, especially if it has experienced significant growth during the marriage, so a valuation is critical. Below are three tactics that can be used.
Multiplying annual revenue
One tactic is to look at a company’s annual revenue and then multiply it by a certain amount, depending on the type of business. For instance, some tech companies get valuations of three times their annual revenue. If the company made $1 million last year, its total value is set at $3 million.
The book value
Another tactic is to look at assets and liabilities. For instance, the company may hold $5 million in assets, but it also has $3 million in debt and financial liabilities. Simply subtracting one from the other gives the book value of the company, which is around $2 million.
Market capitalization
Finally, for large businesses that have publicly owned shares, market capitalization can be used. You simply look at the total number of outstanding shares that exist and multiply that by the value of one share to get the total value of the business overall. This can be accurate, but it will not apply in many divorce cases, as small businesses and many family-owned companies are not publicly traded.
All of these are viable tactics, and valuations will sometimes be made by using multiple tactics simultaneously. Disputes over the value of a business are common, as are conflicts over how it should be divided in divorce. Couples going through a high-asset divorce must understand their legal options.