Divorce can become more financially complicated when one or both spouses own a business. Unlike a bank account with a clear balance, a privately held business may require a professional valuation to determine what it is worth.

Whether you own the business or are married to the business owner, understanding the valuation process can help protect your financial interests.

Why Is a Business Valued During Divorce?

When a business interest is part of the marital estate, its value may affect how property is divided. This is especially common with family businesses and closely held corporations, where ownership interests are harder to separate from the marital estate.

This does not necessarily mean the business will be sold or that both spouses will continue owning it after the divorce. In many cases, one spouse keeps the business while the other receives additional assets, a buyout, or payments over time.

An accurate valuation helps determine whether the overall division is fair.

What Information Is Reviewed?

A business valuation may include a review of:

• Business and personal tax returns
• Profit-and-loss statements
• Balance sheets
• Bank and payroll records
• Business debts
• Ownership agreements
• Equipment, inventory, and other assets
• Historical earnings and future projections
• Compensation and benefits paid to the owner

Complete financial records are important. Missing or inaccurate information can lead to additional discovery, expert review, and disputes.

How Is a Business Valued?

No single valuation method works for every company. A valuation professional may consider one or more of the following approaches:

• The income approach looks at the business’s earnings and future income potential.
• The market approach compares the business to similar companies that have been sold.
• The asset approach considers the value of the business’s assets after subtracting its liabilities.
• The appropriate method depends on the company’s industry, size, financial history, and operations.
  

Why Does the Owner’s Income Matter?

Business owners may receive compensation through salary, bonuses, distributions, benefits, carried interest, or company-paid personal expenses.

A valuation professional may examine whether the owner’s salary is reasonable for the work performed. Adjustments may be made when the owner is paying themselves significantly more or less than someone in a similar role would typically earn.

This analysis may affect both the value of the business and the income considered for support purposes.

What Happens After the Valuation?

Once the value is determined, the parties can decide how the business should be addressed.

Possible outcomes may include:

• One spouse keeping the business
• A buyout of the other spouse’s interest
• Payments made over time
• The other spouse receiving a larger share of different assets
• Selling the business and dividing the proceeds

The best solution depends on the business, the available marital assets, and each spouse’s financial circumstances.

Speak With a Massachusetts Divorce Attorney

Business valuation is often central to high net worth divorce cases, where it can affect property division, support, taxes, and the future of the company.

Attorney Karla Mansur helps clients understand the financial issues involved in divorce and develop a strategy based on their individual circumstances.

Contact Mansur Law Group here to learn more about protecting your business or your financial interest in a spouse’s business.

This article is for general informational purposes only and is not legal advice.