A Divorce Lawyer Fairfax VA Trusts Explains Business Asset Valuation in a Divorce
Business asset valuation is the process of determining a monetary amount that best reflects the value of a business. Business valuation is important in quite a few situations. Business valuation is often required when one seeks to sell their business so that potential buyers understand the value of the business they are considering purchasing. This valuation, in turn, assists the owner in determining a fair sale amount for their business.
Business valuation can also play a big role in a Fairfax VA divorce. When divorce occurs, a couple’s assets are divided between both parties. Thus, business valuation in divorces allows the court to understand how much an important economic asset of a divorcing couple is worth, in order to determine how the business and other assets will be dispersed amongst the spouses. As a divorce lawyer can explain, business valuation in a divorce can also be used in determining alimony payments. Business valuation can also play a very important role in estate tax issues and bankruptcy proceedings.
The Different Methods of Business Valuation
Business valuation methods can vary based on the type of business, the goal/use that the valuation is made for, and the method preferences of a valuator. However, there are three commonly utilized methods for valuing a business. First is the asset method, which seeks to answer the question of how much money would be paid for all of the different assets that make up the business. The asset method requires an evaluator to compile a complete list of all a business’s assets, such as real property, equipment, stocks, or other security instruments that are outright owned by the business. After tallying the financial value of all the assets, the business’s liabilities (ie. debts owed, etc.) are subtracted from the amount in order to receive an asset-based business value.
The second business valuation method is the income method, which seeks to determine the present value of a business’s likely future returns. The income method utilizes the discounted cash flow approach in order to provide sound estimates of future cash flows. From there the total estimated amount of future cash flow is then discounted (i.e. reduced/increased at a rate that could be based on potential inflation or some other capitalization multiplier). The income method is essentially the capitalization of the earnings of a business in order to give an idea of what revenue can be expected in the future.
The third business valuation is the market method, which looks to the value that market actors have placed on comparable businesses that deal in the same goods and services as the business that is the subject of the valuation. This style of valuation is best used in arms-length negotiations where detailed information about the business’s balance sheets and assets have not been provided. Relevant data utilized in the market method include data about other comparable companies and information about past transactions of a similar nature, which are used as points of references for determining the economic value of a business.
Contact a Divorce Lawyer for Assistance
Have you decided to end your marriage and anticipate issues over how your family business will be affected by a divorce? Contact May Law, LLP today to set up a consultation with a divorce lawyer Fairfax VA clients recommend. We can help you with all aspects of your divorce and ensure your rights and interests will be fully protected.