Wakeman Law Group, PC Legal Blog

3 mistakes to avoid when dividing a business for divorce

On Behalf of | Sep 14, 2022 | Divorce

One of the many marital assets that’ll need to be discussed is the division of a business. When it comes to valuing marital assets, knowing how to value a business and fairly divide it can be tricky.

A party may overlook and mistake the importance of certain qualities that define the true value of a business. If you’re discussing the value of a business and how it should be divided, you may need to know what can be missed:

  1. Mistaking the value of tangible and intangible property

All assets should be accounted for when valuing a business. A well-maintained business knows what assets are tangible and intangible.

Tangible property is anything physically represented: land, machinery, software, stocks and savings. Intangible property is a concept or intellectual idea that makes money in the future: copyrights, goodwill, customers or franchises.

It’s often easier to value tangible property that doesn’t have fluctuating prices. It can, however, be easy to overlook what intangible property helps support the business.

  1. Failing to know the financial liabilities of the businesses

Businesses have to account for many financial responsibilities: business loans, property taxes, payroll, etc. When determining how a business should be valued, it may be best to know the income and expenses.

Businesses generate an income based on the product or service being provided, including any investments, but, it will also have expenses deducted for the cost of said product or service, including software subscriptions, taxes, salaries and any debt accumulated to build the business.

There should be some kind of record book for the business, but expenses and income can change over time, making it harder to estimate the value of a business.

  1. Using the wrong valuation method

Typically, two models help determine the value of a business: book value approach and market approach.

A book value of a business is valued by what the business determines its appreciation is over the years. A market approach decides the business’s value based on what buyers would pay. Using the wrong method could cause a much lower or higher value for a business.

Unlike valuing a car, home or furniture, businesses don’t always have a definite market value. You may need the help of an experienced attorney to help value a business during divorce.