Valuing your family business for a divorce settlement

New Jersey is an equitable distribution state, which means if you have ownership in a business, and it meets the requirements for marital property, you may need a business valuation before reaching terms for a settlement. 

According to the New Jersey Law Journal, the court determined the value of a business by identifying the property, establishing value and determining a fair and just division of the assets. This includes a family business. However, if you and your spouse can agree on the company value without going to court, you can maintain a modicum of control. This is often preferable to letting a judge decide. 

What is a business valuation?

Several internal and external factors contribute to the value of your business. Although the exact elements depend upon the nature of your company, they typically include the following: 

  • Owner involvement 
  • Past and future gross revenue 
  • Business location and overhead expenses 
  • Economic conditions 
  • Competition 
  • Goodwill 

The process of valuing your business may use one or more approaches, such as market-based, income-based or asset-based. 

What type of valuation is best?

Each approach has pros and cons, depending on the factors listed above. It also depends on the valuation goal. If you and your spouse currently run the business together and wish to remain that way, the valuation may use a different approach than if one of you plans to buy the other out. Using industry valuation norms looks at the value of your company in your industry. If you plan to liquidate, take the cash and walk away, the asset accumulation approach may benefit you. Instead of looking at profit-generating potential, it takes the value of business assets minus the liabilities. 

Not sure about which approach is right for you? Learn more about a business valuation for a divorce settlement here.