How much is the family business worth?

Going through a divorce is never simple, but one factor that can add a new layer of complexity to the proceedings is the inclusion of a family business. Like everything else from a marriage, if a business is marital property then it is subject to property division.

In these cases, those involved in the divorce process need to answer a key question: How much is that business worth?

Valuating a closely held family business

According to Inc, more than 90% of businesses in America are considered closely held, meaning the enterprise is owned, operated and managed by a small number of people. Many family businesses will fall into this category. Determining the value of a closely held business can be difficult because there is not much – if any – public information to use as a measuring stick.

Oftentimes in a divorce, the parties will use an expert to determine a business’ valuation. This expert will look over numerous aspects of the business to try to figure out what it is worth. That might include reviewing things such as:

• Business history
• Economic forecast and outlook
• Goodwill
• Tax records
• Stock of comparable businesses

Separating spouses can agree to use one such expert to determine valuation, or, if one party disagrees with the determination, each can enlist their own independent expert to come up with a valuation.

Dividing the business

As all marital property needs to be divided equitably – meaning fairly, not necessarily equally – each spouse’s interest in the business must be taken into account. There are many factors to consider, and the valuation figure can help guide what happens next.

For example, the spouses might agree to sell the business and split the profits in a fair manner. Or maybe one spouse holds on to the entirety of the business, while the other receives other marital property of equal value in return.

A couple can strike these agreements themselves or with the help of an attorney during negotiations or potentially mediation. The issue could go to the courts however if the parties cannot reach a deal. While a simpler solution is often preferable, it is important during any divorce to be prepared for any possibility, particularly when considering the complications that can come with dividing a family business.