Robert G. Smith, PLLC

Business valuation in a divorce

When a married couple in New York owns and operates a business together and decides to get a divorce, the question about what to do with the business logically arises. Some people might be able to find a way to work together as business partners even if they are no longer married. Forbes indicates that for people who do not feel they can do this, they might sell their business to a third party or allow one spouse to buy the other person out.

In these latter two situations, the value of the business must be determined and agreed upon. This is something that should happen as early in the process as possible, in large part because the financial worth of the company will be directly linked to other financial agreements in the divorce settlement.

The Corporate Finance Institute explains that there are multiple ways to determine the value of a business. Using what is called the discounted cash flow approach, a business value generally ends up being higher than with other valuation methods. This approach does not look at factors external to the business but rather only the cash flow and future forecasted cash flow of the business. This is the most detailed manner of valuing a business.

A business may also be valued by comparing it to other companies. Comparisons may be made against price other companies have been recently sold for or against the reported financial earnings of other companies. Both of these are called market approaches to a business valuation.



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