November 03 , 2016

Business Valuation and Divorce Proceedings

The Business valution Approach

Business valuation experts are vital contributors in divorce proceedings that have business entities at the center of the settlement and distribution of marital property. If at least one person within the marriage is an entrepreneur and business owner, business valuation services will be necessary for determining a fair split between the business assets. Assessing the value of a business can be a confusing and exhausting process. However, having a methodically fluent and well-versed business valuator, particularly with complicated cases, can assure fairness and accuracy in the outcome in your property division and settlements.  

Benefits of Hiring a Business Valuator:

1. You get accuracy determining value

2. You benefit from the work of a certified & seasoned expert

3. You can obtain assistance with litigation & mediation

4. Everything in your divorce will be treated with outmost confidentiality

5. You can benefit from well-versed explanation of outcome  


Business valuators use a set of procedures to estimate the economic growth of the business during the length of the marriage and then calculate the fair share of distribution for both parties. While the process sounds simple, business valuators typically must take into account a multitude of variables, which make the process complex. There are three approaches that assist in the business valuation process for property settlements: a) the asset approach; b) the income approach; c) the market approach.

 Business valuator experts must take into account each approach and their various sub-methods to determine which would fit for each case. It is rare for all three approaches to apply to one particular case but it is still necessary to weigh the strengths and weaknesses of each in contrast to the necessary demands in accurately determining the business value. Once the approach has been implemented, business valuation experts are expected to create a formal report and appear in deposition and court to present their findings.  

The Asset Approach

An asset approach is based on the value of tangible and intangible assets minus the company’s liabilities. This approach is most commonly implemented in holding and investment companies or small businesses that lack goodwill and intellectual property. Calculating the value of equipment, property, and aged inventory are often the trickiest areas to maneuver, as they are not equivalent to the book value of said items.  

The Income Approach

An income approach is typically used for businesses that qualify as privately held companies. The goal of this approach is to calculate the value of a business by estimating the future income benefits using one of the various sub-methodologies that include: 1) capitalized cash flow method; 2) discounted cash flow method; and excess cash flow method, to name a few.  

The Market Approach

Divorce real estate specialists are experts in this approach as it involves the analysis of a given sales market to determine the value of an entity that is similar to other entities that have been sold. This approach is particularly simple to understand but extremely difficult for business valuators to implement because there are so many varying differences amongst businesses: size, sales, profit, and geographic location.   It is vital to have a business valuation expert that is not only knowledgeable about the methodology, but also well equipped to explain the process in court as outcomes and reports are difficult to understand.