Business valuations for high-asset divorces

| Jul 16, 2021 | High-Asset Divorce |

Business valuations can play a pivotal role in negotiations when navigating a high-asset divorce in the Illinois court system. It’s vital to get it right the first time because today’s errors can mushroom into tomorrow’s financial headaches.

What is a business valuation?

A business valuation is just as it sounds: a monetary assessment of a company. Business valuations consider a range of factors, including past and present performance, income, return on investment potential, revenue streams and a host of organizational factors.

Types of business valuations

Though the end goal is always the same, business valuations aren’t one-size-fits-all. Picking the right method for a high-net-worth divorce could ultimately impact the amount of money and assets that you walk away from the marriage with.

  • Asset based: As its name suggests, asset-based valuations account for a company’s material assets. Everything from real estate to cash on hand is counted and valued.
  • Value based: Value-based business valuations can look at one or more aspects of a corporation, including stock activity, liquidation value and enterprise value. Typically, they’re the most comprehensive type of assessment.
  • Market based: Market-based valuations are essentially comparisons. The analysis is based primarily on recent sales prices of comparable businesses.
  • ROI based: ROI valuations examine the likely return on investment a buyer will enjoy. Cash flow and performance statistics factor heavily in the calculation.
  • Income based: Income-based valuations derive an equity price based solely on how much cash is coming through the door. The final number is typically the net operating income divided by the capitalization rate.

Professional guidance

Working with attorneys who understand the ins and outs of small business valuations can be helpful in high-asset divorces. Negotiations are the key to a successful settlement, and working with a seasoned lawyer who is well-versed in financial valuations may give you the edge.