As the owner of a small business, the business interests in question might end up as the focus of asset division in your upcoming divorce. This makes it necessary to have a firm grasp on your business value, making business valuation crucial.
As the state calls for equitable asset division, this means that the division is fair as determined by the court, but not necessarily half-and-half equal. This is something you should prepare for moving forward.
Book vs. market value
Cornell Law School takes a look at the book value, or the net asset value, first. This is the value indicated within your company books, which includes the original cost of your assets with additional regard for any appreciation or depreciation over time.
The court may use market value as well. This is the amount that your business would likely net if purchased from any buyer on the open market. To determine the market value, a judge will examine trends in assets and income over a five-year period. They use this to project your income and assets over the coming five years.
Determining market value
In some cases, a court may determine a business as too small for an established market value. In this case, the judge will instead review assets and debts through a full accounting of your tangible and intangible property, which they will request you to provide. This includes your market reputation, intellectual property, software and client goodwill, along with cash assets, inventory and equipment.
After subtracting business debts such as payroll or financial liabilities from these numbers, it will lead the judge to a fair determination of market value to use in asset division.
