The typical small business is the product of hard work, sacrifice and taking a chance on a dream. If you are going through a divorce and a business that you or your spouse owns is subject to division, you deserve to know exactly what that blood, sweat and tears have produced.
Specifically, before proceeding with selling the business or one spouse buying out the other’s share, both sides need to know the company’s fair market value at this moment in time. That usually requires a professional valuation of the business, its assets and debts.
How does business valuation work?
There are three common ways to conduct a business valuation:
- Asset-based: add up the business’ total investments
- Earning value: determine the business’ ability to produce wealth in the future
- Market value: compare the company with similar ones that recently sold
Each method has its advantages, and professional business valuators often combine two of them to reach their conclusion. Also, it is common for each party to hire their own valuator — and for each expert to come up with significantly different dollar figures. From the divorcing party’s perspective, working with an attorney who regularly represents business owners and their spouses is helpful.
Divorce, asset division and business ownership in Texas
Texas is an equitable property state. This means that marital assets must be divided fairly between the spouses, but not necessarily 50-50. This gives you and your spouse significant room to reach a solution that both of you can live with long-term. Keep in mind that it is not necessary for both spouses to have worked at the company for both of them to have a partial claim to the ownership interest.