Sarasota Business Valuation Divorce Attorneys

In order to effectively determine ownership of business during a divorce, the court must determine the classification of the business as either a marital asset or non-marital asset with consideration to a number of factors. The courts may consider the date in which the business was established; the source of financial contributions to the business’ creation; the financial and time-related investments made by each spouse to the business; the experience and skill required to successfully maintain the business; and the difference in the initial value of the business from the current value.

In the case that business was acquired prior to the marriage and both spouses contribute marital funds into the business — or if the non-owning party left his or her job for the benefit of the business — the classification of the business may be transmuted from personal separate property to marital property. Additionally, a business acquired during the course of the marriage may not be classified as marital property if the business was inherited or was received as a gift from individuals who are not associated with the marriage. Businesses may also receive divided classifications.

Certain portions of the business may be considered marital in nature, while other portions are classified as non-marital in nature. During the classification process, the courts typically take into consideration the division of shares in the business as well as the ownership interests of other types of business partners not affiliated with the marriage.

Asset Approach

The asset approach calculated the value to the business through the formula: value equals assets subtracted from liabilities. Marital business assets include both tangible assets — inventory, infrastructure, and any other physical property — and intangible assets — which include intellectual property and accounts receivable. While this valuation process may seem simple on paper, attributing value to business assets can be arbitrary in nature and pose difficulty in determining the overall valuation of the business. What’s more, asset-approach valuation doesn’t take into account undocumented assets and debts which may create additional complications with the overall valuation of the business. As such, valuation with an asset approach is best suited for small-size and independently owned businesses.

Income Approach

The income approach is calculated based on historical information and particular formulas to determine the net income of the business as well as the expected income in the near future. In addition, the formulas used with the income approach consider a number of potential benefits and rate of risk or return. While this is the most commonly used approach in determining the value of a marital business, this option can present a significant number of inaccuracies for owner-operated companies. Essentially, the total is comprised of subtracting the owning spouse from the equation, adding the cost of an employee-replacement to the owner and determining the net income projected for the next five years, and subtracting potential risks values.

Market Approach

The market approach calculated the business value by comparing the business in question with other businesses with similar characteristics that have been sold. This approach is similar to the process of valuing residential homes based on other sold properties in the same neighborhood. A number of valuation experts adjust their calculations based upon results of the asset approach and income approach. However, the use of the market approach for marital business valuation is dependent upon the availability of other similar businesses that are either currently for sale or have recently been sold, or “comps.”