An individual’s successful business will likely contribute substantially to their overall personal wealth. It may be their main source of income, and they may reinvest in their company regularly.
Therefore, their spouse may try to lay claim to some of the business’s value during divorce proceedings. Oftentimes, at least part of a business’s worth will be subject to division during an Ohio divorce. One of the first questions people need to answer as they prepare for divorce negotiations or litigation when there’s a business involved is how much the company is worth. Answering that question can be a real challenge, as there are a variety of different business valuation methods available.
The value of using an asset-based approach
An asset-based approach to business valuation evaluates the total value of the assets in question, as well as the company’s liabilities and someone’s equity in the company. Both physical assets and intangible resources can contribute to what a company is worth. There is usually a straightforward formula for establishing a value when looking primarily at a company’s assets and liabilities, which can reduce conflict about the accuracy of the valuation.
The asset-based valuation process is also useful in cases where people believe they may need to liquidate the company in the future. While determining the value of intangible assets and off-book assets can be a challenge, an asset-based valuation approach can at the very least establish a reasonable minimum value for the organization.
Instead of focusing on what a company will earn in the future, this approach quantifies the resources that the company currently owns. Of course, establishing the fair market value for business resources can be a challenge. People often require support during business valuation efforts, as mistakes in this process could end up putting their ownership interest at risk or leading to someone overextending themselves while seeking to compensate their spouse for a share of the equity in the business.
Utilizing the right business valuation model is of the utmost importance for those seeking a fair outcome in a divorce that includes a business in a couple’s inventory of marital assets.