Dividing assets in a divorce becomes more complex when one or both spouses own a business. Understanding business valuation helps determine how much the business is worth and how it factors into asset division.
In Minnesota, courts follow equitable distribution, dividing assets fairly but not necessarily equally.
Methods of business valuation
Three common approaches help determine a business’s value in divorce. The income approach estimates value based on earning potential. Future income projections are discounted to present value, making this method useful for businesses with stable profits.
The market approach compares the business to similar businesses recently sold. Industry trends and market conditions influence the final valuation.
The asset approach calculates value based on assets and liabilities. This method works best for asset-heavy businesses like manufacturing companies.
Factors affecting business valuation
Several factors impact business valuation in Minnesota. Ownership structure plays a role, as sole proprietorships, partnerships, and corporations require different valuation considerations. Business goodwill can influence value, with courts distinguishing between personal goodwill (tied to an individual) and enterprise goodwill (tied to the business itself). Only enterprise goodwill is usually included in marital assets.
Financial records must be accurate, as hidden assets or unreported income complicate the process. Spousal involvement can also affect valuation. When both spouses contribute to a business, one may receive a greater share of its value.
How Minnesota courts divide business assets
A business started during the marriage is usually considered marital property in Minnesota. Even if one spouse started it before marriage, the other may be entitled to a portion of its increased value. Courts consider factors like each spouse’s contributions and whether one will continue running the business when determining asset division.
Avoiding business valuation disputes
Disputes over business valuation methods and final amounts often arise in divorce. A neutral valuation expert can help ensure an accurate assessment. Keeping thorough financial records and establishing prenuptial agreements can also reduce complications.
