Will a Business Valuation Be Required During My Divorce?

 Posted on October 10, 2023 in Kane

The process of divorce can be complex, especially for spouses who need to determine how to divide assets such as family businesses. One important aspect to consider during a divorce is the valuation of any businesses owned by either spouse. For business owners and their spouses, determining the value of business assets is a crucial aspect of ensuring an equitable distribution of marital assets. When addressing issues related to business valuation and division, an attorney who has experience handling these concerns can be an invaluable resource, and they can advocate for a fair division of marital property.

What Is a Business Valuation?

A business valuation is an assessment conducted by financial experts to determine the fair market value of a company. This valuation provides an accurate picture of how much the business is worth. A comprehensive valuation of business assets can play a significant role in property division negotiations during divorce proceedings.

Why Is Business Valuation Necessary in Divorce Cases?

Determining the value of a business during divorce can help ensure that each spouse will receive their fair share of marital assets. Without a proper valuation, both spouses may not understand the actual monetary value of business assets. A review of a business’s financial information may also uncover discrepancies, and it can ensure that a spouse cannot use a business to hide assets or unfairly influence the property division process.

In Illinois, all marital property--including any business interests acquired during a marriage--is subject to equitable distribution laws upon divorce. "Equitable" does not necessarily mean equal. A couple’s assets will be divided in a manner that the court deems to be fair based on various factors that may affect each party’s individual financial circumstances.

Spouses may negotiate a settlement and reach agreements on how a business and other assets will be divided equitably. However, if a couple cannot reach an agreement, they may leave the final decisions up to the judge in their case after holding a divorce trial. A proper business valuation will ensure that a judge will have all the information needed to determine how business assets and other marital property should be divided between spouses.

Business Valuation Methods

During the divorce process, several different methods may be used to determine a business’s value, including:

1. Market approach: This method determines the value of a business by comparing it to similar companies that were recently sold. It takes into account market trends and industry standards.

2. Income approach: A business’s value may be determined based on its cash flow, projected profits, and ongoing expenses and liabilities. This approach often involves analyzing historical financial statements and projecting future revenues.

3. Asset-based approach: This method calculates the business's value based on its tangible assets, such as equipment, property, and inventory. Intangible assets like brand reputation or intellectual property may also be considered. Debts or liabilities may be subtracted from the total value of business assets to determine a business’s monetary value.

The Role of Business Valuation Experts

In divorce cases involving business interests, each party may hire forensic accountants or other financial experts to conduct valuations. These experts can assess a business's worth through the methods described above, and they can also analyze financial information to uncover any discrepancies. Their role is essential in avoiding unfair outcomes when dividing marital assets. By providing spouses with a complete assessment of the present and future value of a business, the findings of these experts can play a crucial role in the negotiation of a property settlement.

Contact Our Kane County Business Valuation Lawyers

If you need to address issues related to a family business during an Illinois divorce, the team at Mirabella, Kincaid, Frederick & Mirabella, LLC can ensure that a business valuation will be performed correctly. Our St. Charles property division attorneys can provide guidance when negotiating a settlement, and we can ensure that all financial matters will be handled correctly during your divorce. Contact us at 630-665-7300 to schedule a consultation.