woman with a delivery service business

How Is a Business Valued in an Arkansas Divorce?

One of the central issues that must be resolved during divorce proceedings is the division of marital assets. This can not only be one of the most contentious issues to address, but it can also be one of the most complicated. The task first begins with the court determining what assets are to be deemed marital and which will remain separate. The separate property will remain in the ownership of the respective spouse. The marital property will be subject to equitable division, meaning it will be fairly, but not necessarily equally between the parties. In some instances, a business, in whole or part, will be considered part of the marital estate. This means that the business will have to be valued prior to deciding how the assets will be divided.

The Value of Businesses in Arkansas Divorces

Valuing a business requires a complex and detailed analysis. Often, an independent expert business appraiser is retained by one or both sides in order to evaluate the value of a business. In the alternative, the parties may agree to jointly retain a single neutral business appraiser.

There are so many factors at play and so many things, like the future, which is unknown, that makes valuing a business not an exact science. It is more of a hypothetical exercise based on the available data. In fact, there are several different business valuation methods that are employed by business appraisers. The most common methods are:

  • The asset approach: With the asset approach, the business appraiser reaches the value of the business through the basic accounting premise that the value will be equal to the business’s assets minus its liabilities. Assets to be included in this calculation may be tangible or intangible. Tangible assets would include things such as inventory on hand, property owned by the business, and accounts receivable. Intangible assets would include things like goodwill, meaning the business’s established presence in a community, its reputation, and its dedicated customer base.
  • The market approach: With the market approach, the business appraiser works to determine what the business would sell for at the time of the appraisal. This process involves comparing the business to other, similarly situated businesses, that have recently been sold. Obviously, the difficulty with this approach may be if there are no businesses similar in nature that have recently been sold.
  • The income approach: With the income approach, the business appraiser uses historical information in employing specific formulas used to predict the business’s expected cash flow and profits. Factors considered in these formulas include things such as the rate of risk or return or future benefits generated by the business. The approach is most commonly employed in business valuation.

Divorce Attorney

Not only can division of the marital assets be incredibly personal and emotionally charged, but it can also have a profound impact on the financial future of the parties. The Law Offices of Bryce Cook will help see to it that your best interests are protected the entire time. We are here for you. Contact the Law Offices of Bryce Cook today.