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Buying out your spouse requires a valuation of the business

On Behalf of | Nov 4, 2021 | blog, Divorce |

If you and your spouse have decided to end your marriage, you may also have to decide what to do with the family business.

Your spouse might be amenable to a buyout, and for this, there are payment options to explore. But first, you will need a valuation to determine what the business is worth.

Standard of value

Before proceeding with the work of determining the value of a business, an appraiser must define the standard of value. In divorce cases, there are usually two options: fair value, which is normally determined under the purview of the court, and fair market value, which is the price that would “change hands between a willing buyer and a willing seller.”

Consideration of goodwill

The amount of public patronage your business enjoys is the foundation of its goodwill. An appraiser will take this into account when arriving at a value. The more established your business is and the more familiar the brand the greater the amount of goodwill.

Options for the purchase

If you have the funds to purchase the business, you can make the transaction easy by transferring the money in one lump sum. However, if the value of the business is more than the funds you have on hand, you might be able to work out a payment plan. The other option is to offer your soon-to-be-ex an asset of equal value during the property division phase of your divorce. For example, the value of the marital home may be equal to the value of the company. This illustrates the point that if your spouse finds a buyout acceptable, you have several options to explore for acquiring full ownership of the family business.