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Naperville family law attorneyWhen a couple is going through a divorce, the most difficult part of the process is often asset division. This may be especially true if there is a family business involved, as the intricacies of evaluating a business can make considerations for property division quite complex. If possible, having clauses in your business agreement to deal with the possibility of a divorce can prevent problems down the road, but if it is too late for that, the next best option is to be as familiar as possible with how business valuation actually works.

Before Going Into Business

Two scenarios can occur in terms of business interests and marriage. The first, more common situation is that your spouse does not work with you in the business, but by virtue of you owning equity in the business, he or she may be entitled to a stake if you divorce. Even though a business that you start before marriage is technically non-marital property, it has a good chance of becoming marital property, given the nature of Illinois law. Personal effort from one or both spouses can be seen as contributions not from the individuals but from the marital estate, which could make the entire business—or at least a substantial portion of it—marital property.

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Naperville family lawyerAsset division is by far the most complex part of divorce for many people, and this is only magnified if a family business is involved. In order to get an accurate estimation of a business’s value for purposes of the marital estate, professionals are often utilized. Even after a value is obtained, however, the business can still be a cause of disagreement.

Different Approaches to Valuation

Depending on the nature of the business, its actual worth may be determined by using one of three different methods. The first is simply listing all available assets, including those of physical and intellectual nature and personnel. This is the best approach for companies that are very young—usually those just barely making a profit. The second is the market approach, which is most often used by valuation professionals and involves estimating the future earning potential of a company by its place in the market. The third is referred to as income valuation, and it involves estimating future potential and then adjusting downward to arrive at current values.

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