Three Ways Small Businesses Can Be Valued in an Illinois Divorce

 Posted on December 16, 2021 in Divorce

One of the most difficult issues to resolve in divorce is small business ownership. For many people, growing their small business has involved an enormous amount of time and personal sacrifice, and the thought of losing the business and shuttering its doors can be devastating. Yet, because the value of many businesses increases during a marriage, the fact is that the increase in value is likely part of your marital property - meaning it is subject to division in divorce. 

Business owners who hope to retain total ownership of their business after divorce will want to learn as much as they can about business valuation methods and how they impact the way a business is treated during divorce. If you are in this situation, read on. 

The Most Common Valuation Methods

There are several ways a business’s value can be determined, and a trained business evaluator can help you choose one based on the type of business you have. The three primary methods of small business valuations are: 

• The market approach - This method looks at other similar businesses that have recently been sold and uses their value to approximate the value of the business in question. 
• The income approach - This method uses a business’s recent profits, cash flow, and expenses to estimate a business’s future income and, therefore, its current value. 
• The asset approach - This method adds the value of a business’s assets and subtracts its debts to calculate the net current value. 

What if My Business Grew by Word of Mouth? 

So much of a business’s value is created by developing goodwill between a business and its customers, employees, and lenders. This takes time to create and can be difficult to calculate. Goodwill is separated into two categories: Personal and business goodwill. Personal goodwill is how much of a business can be derived from the business owner - his or her relationships with customers, the community, and other companies the business deals with. Business goodwill is the reputational value that a business has, no matter who owns it. 

In an Illinois divorce, personal goodwill can be used when considering the value of a business, but it usually cannot be divided as a marital asset. In contrast, business goodwill can be calculated as part of a business’s value and divided as a marital asset. 

Meet with a Cook County Asset Valuation Divorce Lawyer

No matter how familiar you are with your business’s value, a Chicago divorce attorney with The Law Office of George J. Skuros can work to help you protect your business interests during divorce. We fight hard for our clients’ rights and bring in valuable outside resources like professional business evaluators when necessary. To find out more about what we can do for you, schedule a free consultation today by calling our offices at 312-884-1222. 

Source: 

http://www.smbceo.com/2019/11/19/how-to-value-a-small-business-for-divorce/