When a business is part of the marital estate, its value must be determined before division. Business valuation in divorce involves more than looking at revenue—it includes cash flow, goodwill, risk, and market trends. The outcome directly influences property division and potentially spousal or child support.
Valuation Approaches
- Income Approach: Projects future cash flow and discounts to present value based on a risk factor. Most commonly used for service-based and growing businesses.
- Market Approach: Compares to similar businesses sold in the open market using revenue or earnings multiples. Useful in industries with active sales data.
- Asset Approach: Adds up the value of all tangible and intangible assets minus liabilities. Often used for asset-heavy or underperforming businesses.
Unique Divorce Considerations
- Active vs. Passive Appreciation: Determines whether value increases are attributable to community or separate efforts
- Personal vs. Enterprise Goodwill: Separates the value of the individual’s reputation from the business’s brand and customer base
- Income for Support: The valuation must reflect reasonable compensation for the owner-operator to avoid overstating profits
Role of a Forensic CPA
- Conducts neutral or rebuttal valuation
- Reviews owner compensation, distributions, and related-party transactions
- Assists with buyout negotiations or structured settlements
- Prepares defensible, court-admissible reports and testifies as needed
Accurate valuation helps ensure fair asset division and can affect support calculations.