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Protecting your business value in a divorce

On Behalf of | Oct 14, 2021 | Divorce |

Frequently in partnership disputes and divorces, a business’s professionally determined value may be at odds with the owner’s own idea of its worth. For business owners in Texas, it’s a valuable service to your financial future to gain an accurate idea of what your company is worth before entering the throes of the divorce process.

With divorce cases where there’s a business involved, a valuation is often required. This is necessary in many cases for the value of the owner’s interest to be calculated for purposes of property division.

Preparing for an expert valuation

As a rule, what ends up happening is a business owner discovering that the company has a much higher value than they thought. This is particularly the case with small businesses that have less marketability but are valued more highly by the owner. For example, a professional service company like a law firm or a doctor’s private practice may have a value that far exceeds what the business would sell for on the market.

The reason for this disparity in valuation is generally because businesses that are service-based calculate their worth from the earning potential in the future as well as the professional goodwill of the company. This is in contrast to the tangible assets that other types of business derive their value from.

The ability to plan ahead by accurately assessing your company’s value may substantially help your divorce case. This makes it all the more important to understand what considerations a valuation expert is going to make in their own assessment. There are three main methods of calculating a company’s worth, and the one that works best for you depends on the type of business you have.

Three of the most common business valuation methods are:

  • The market transaction approach
  • The income approach
  • The asset approach

No matter what kind of business you own, it’s extremely prudent to learn how a valuation expert will view your company before the divorce proceedings begin. This will give you accurate information to prepare for the future and will help you bring a strong case forward.