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How do you value your small business for divorce purposes?

On Behalf of | Oct 30, 2021 | Firm News |

Small businesses are the lifeblood of North Dakota. In fact, the state has roughly 77,000 small businesses that employ about 58% of the workforce. If you are a small business owner, however, you may stand to lose some ownership of it during your divorce.

In the Peace Garden State, divorcing spouses typically receive an equitable share of the marital estate. If you do not have a prenuptial agreement, your small business is likely marital property that requires division during your divorce. Here are three ways to determine how much the venture is worth.

1. Market-based valuation

Generally, the easiest way to value a business for divorce purposes is to look at recent sales of similar businesses. This can be difficult in North Dakota, however, as there may not be enough available sales data to make a reliable comparison.

2. Asset-based valuation

Asset-based valuation uses your small business’s inventory, furnishings, intellectual property and other assets to determine its value. With this approach, you add together everything your small business owns and subtract its debts.

3. Revenue-based valuation

If you know how much revenue your company takes in, the revenue-based valuation may be the right valuation method for you. Of course, if you opt for this approach, you probably need to consider your small business’s projected revenue too.

It may be in your financial interests to obtain more than one valuation for your venture. Your soon-to-be ex-spouse may want to do the same. Ultimately, though, if the two of you can agree about how much your small business is worth, you may be in a better position to negotiate its future ownership.