Understanding different business valuation methods

Many in Battle Creek might wonder why they are expected to divide a portion of their personal business assets with their soon-to-be ex-spouses (especially if he or she already owned the business prior to the marriage). In many cases, such holding would be considered separate property. However, according to Section 552.401 of Michigan's Compiled Laws, a non-owner spouse may entitled to a portion of the other's separate property if he or she contributed to its acquisition, improvement or accumulation. 

When business assets are subject to property division, questions may arise concerning their valuation. Placing a value on business assets is often done by an independent financial professional, yet those involved in the process should understand the different valuation methods used. These include: 

  • Book value: Determining the current value of assets minus depreciation
  • Market value: Determining what an outside investor might pay for a business
  • Going concern: Determining the value of business continuing to operate in the foreseeable future

When trying to assign a value based off the going concern of a business, two distinct factors are considered: the business' enterprise goodwill (the value associated with its reputation) as well as it's personal goodwill (the value associated with the reputation of its owner). Both sides in a divorce case should consider the aims of these valuation methods to determine whether it is in their best interest to liquidate business assets and divide the proceeds, or to continue to allow the business to run. 

Those thinking that their former spouse's lack of participation in their businesses bars them from receiving any of its assets should know that (per the Michigan Legislature) state law calls for the division of otherwise separate property if the share of the marital estate awarded to the non-owner spouse is insufficient to provide him or her suitable support. 

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