How Are Businesses Valued in an Illinois Divorce?

 Posted on June 01,2023 in Divorce

When one or both spouses own a business, it is considered a marital asset. Thus, it would be subject to equitable division under principles of Illinois law. However, the two spouses may not be able to agree on a valuation of the business because each may have their own competing interests. Business valuation can make a divorce more complex, and you should contact a DuPage County divorce attorney to protect your own interests.

Expert Witnesses Can Help You Establish a Value

Each spouse would need to hire at least one expert to give their opinion about the business value. You may also require forensic accountants to testify about the company’s cash flow and profitability. Oftentimes, business valuations become a “battle of the experts.” Your attorney would have a network of qualified experts to enlist for your case.

Experts May Use Different Valuation Methods

Two experts could reach very different conclusions, based on both the methodology they use and their inputs into the model. Here are some ways that businesses can be valued:

• Income Approach - The expert would apply a multiplier to the company’s forward earnings to establish the value (this is the most commonly used approach).
• Market Approach - The company is valued by comparison to other businesses and the valuations that they have received in recent sales
• Asset Approach - The business is valued at its assets minus its liabilities (this approach can be used for companies that are not earning profits, where there are no comparable sales).

Even if experts are using the same approach, there may still be room for a significant difference of opinion. For example, they may disagree about the future earnings of the business. They could have different ideas about what may be a comparable business that has had a recent sale. Your expert would need to be comprehensive and persuasive.

Of course, one could avoid most of these difficulties if they had a prenuptial agreement that states how the business would be valued in the event of a divorce.

Contact a DuPage County Divorce Lawyer Today

Divorces involving businesses can be among the most complex. You always need legal representation in these cases, and you should select an attorney who is experienced in high net worth divorces. The Naperville, IL family lawyers at Calabrese Associates, P.C. can proactively assist you in difficult divorces with complicated financial issues. To speak with an attorney, call us today at 630-393-3111.

Source:

https://www.nerdwallet.com/article/small-business/how-to-value-a-small-business

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