Divorce can be emotionally and financially complex, but even more so when one or both spouses own a business. Whether it’s in the role of a sole proprietorship or co-ownership in a large company, understanding how the business may be valued and divided during divorce is crucial to protecting one’s interests. Here’s some guidance based on an article in Small Business magazine.

Why Business Valuation Matters?

In a divorce, the court may require a formal business valuation to determine how to divide marital assets fairly. This valuation provides a clearer picture of the business's worth, which can impact everything from asset division to support obligations.

Placing a dollar value on a business is not straightforward, though, especially when it's closely tied to one spouse’s personal efforts and reputation. Factors like liquidity, taxes, and business risk can all play a role in determining value.

What Factors Influence Business Valuation?

Courts may consider several aspects when assessing the value of a business:

Tangible and intangible assets
Income history and future earning potential
Business structure and ownership

Obtaining complete financial documentation is essential. Without it, you risk an inaccurate valuation—which could result in an unfair settlement or court judgment.

Businesses are valued using IRS revenue ruling 59-60. It’s complicated. It’s not a formula. It means you need a financial expert, like a business valuation expert or forensic accountant – or both - especially in certain businesses (for example, restaurants, pizza parlors, smaller companies and anytime cash is involved).

How to Protect Your Business Ahead of Time

If you’re a business owner, there are proactive steps you can take to safeguard your company from the fallout of a future divorce:

Prenuptial or postnuptial agreements: These can clearly outline how the business will be treated in the event of divorce.
Shareholder agreements: For businesses with multiple owners, these agreements can restrict the transfer or sale of shares during personal disputes.
Separate finances: Avoid mixing business and personal funds, which can greatly complicate matters during valuation.

If you're facing divorce and own a business—or your spouse does—it is very important to understand your rights and obligations. With the right legal and financial guidance, you can navigate the process confidently and protect what you’ve built.

Ensuring your valuation is accurate and that your interests are protected starts with assembling a top legal and financial team to safeguard your interests. Contact the Bucks County top family law attorneys of Williams Family Law for help by phone at 215-340-2207, or email us at info@bucksfamilylawyers.com.