Texas is a community property state for divorce purposes. This means you and your spouse jointly own everything you acquired during your marriage that is not separate property. Upon divorce, your spouse may have a meaningful ownership interest in your business.
You probably have some options for dealing with your soon-to-be ex-spouse’s ownership interest. Before you can explore these options, you need to know how much your business is worth. Three valuation methods are popular among business owners who are considering filing for divorce.
1. Asset-based valuation
Your business may have inventory, equipment, accounts receivable, intellectual property or other valuable assets. Asset-based valuation measures the value of your company’s assets relative to its liabilities.
2. Income-based valuation
As part of regular business planning, you probably prepare income projections and economic forecasts. With income-based valuation, these forecasts are important, as you assign worth to your company based on how much income it stands to collect in the future.
3. Market-based valuation
Market-based valuation simply determines the value of the business on the open market. That is, it considers how much your venture would likely bring if you offered it for sale. Looking for recent sales data on comparable businesses in your area is key.
While asset-, income- and market-based valuation are common, there may be other ways to determine how much your business is worth for divorce purposes. Working with an accountant or another financial professional in the lead-up to your divorce may give you the most useful value of your business.
