Dividing property is always difficult in a divorce, and this can be especially true when a couple’s assets include a private business that has been a significant source of the family’s income. In order to ensure that both spouses are treated equitably, a business valuation generally needs to be done – otherwise, there is likely to be disagreement about how much the business is worth and what assets should be weighed against it during the equitable distribution process.

In the state of New Jersey, there are three different methods available for determining the value of a business. They are:

• The income method – This is based on the financial benefit that the business produces
• The market method – This is based on how much the business could be sold for
• The cost approach method – This is based on the value of the business’ underlying assets

Choosing the right business valuation method is often dependent upon the specific circumstances, as the value will change depending on which method is chosen. Much depends on the type of business the couple owns, as an online or consulting business will need a different approach than a business that relies on inventory and equipment. The business’ assets may be non-physical and may depend on community goodwill, copyrights, and items that cannot easily be assigned or divided.

In some cases, couples may have already agreed to shareholder agreements or have other contractual constructs in place. The situation can also be complicated by additional partners, or where one spouse has played a larger active role in the business’ operation than the other. The business valuation can also come into question when it comes to calculating alimony, as the spouse that retains the business will likely realize benefits from the business that go beyond income. And of course, when one spouse suspects that the other may be treating them unfairly, forensic accounting specialists are needed to resolve questions and issues.

In many cases, the best way to determine business valuation is to compare the outcomes of all three methods to determine which provides the answer that is closest to what both members of the marriage agree to. At Jensen Bagnato, P.C. our professionals will help you identify the best way to address this complex issue to make sure you are treated fairly.