How are businesses divided in a divorce?

On Behalf of | Oct 25, 2022 | Divorce

Texas business owners work hard to establish and grow their companies. In addition to providing income for the owners and their families, businesses can also have value like other pieces of property. This can provide some added incentive to growing the business, but it also means that if a business owner ever goes through a divorce, it needs to be divided like other assets.

However, businesses are not like other types of property in many ways. For one, it is not always easy to determine the value of the business. So, before a person can determine how the business will be divided in divorce, they need to complete a business appraisal.

Methods to value a business

There are different ways that appraisers determine the value of a business. One method is the asset-based method.

Using the asset-based method, appraisers place a value on all of the assets of the business, which include bank accounts, physical property or equipment, real estate and other assets. This overall value is then offset by the liabilities the company has for loans and other debts. The net outcome determines the value.

Another method that appraisers use is based on the income generated by the business. This method determines the present income generation and then forecasts what the future income generation will be. The future income is then assigned a value and reduced to a present value based on the forecast income projections.

Another method is based on the potential sale price for the company if the owner attempted to sell it in its current state. Appraisers will find recent sales of similar companies and assign a value based on the purchase price for those businesses.

Simply determining the value of a business in Texas can be a complicated process. Dividing the business in a divorce can be just as complicated depending on the circumstances of the marriage. Experienced attorneys understand how businesses are handled in divorces and may be able to guide one through the process.