Factors for Self-Employed Business Owners Getting Divorced

 Posted on August 28, 2023 in Divorce

For self-employed business owners, getting a divorce can be a challenging experience, especially concerning what will happen to your business due to the divorce. Apart from the emotional aspects of the divorce, the division of assets and liabilities, including the valuation of the business, adds another layer of complexity. Today, we will examine key considerations for self-employed business owners getting a divorce and discuss the best approaches to valuing their business. For small business owners getting a divorce, obtain the legal counsel of an experienced divorce lawyer to ensure you can make as informed a decision as possible regarding the future of your business.

Valuation Methods for Self-Employed Business Owners

When valuing a business, various methods exist, including market-based, asset-based, and income-based approaches. While market-based methods may be appropriate for larger public companies, self-employed business owners often find income-based or asset-based approaches the most suitable. 

Income-Based Valuation

Valuing a business based on its income-generating capacity is often the preferred method for self-employed business owners. This approach involves assessing the business’s past and potential future income to determine its value. Key factors to consider also include the stability of the business, its growth potential, and any risks or uncertainties that may impact future earnings. 

Financial records, such as profit and loss statements, tax returns, and bank statements, are crucial to perform an income-based valuation. Additionally, it may be necessary to engage the services of a financial professional who can evaluate the business’s financial health and provide an accurate valuation. 

Asset-Based Valuation

Another viable method for valuing a self-employed business is the asset-based approach. This method involves determining the net value of the business by structuring its liabilities from its assets. For self-employed business owners, who often have personal and business finances intertwined, it is essential to identify and separate personal assets from business assets to arrive at an accurate valuation. 

Additional Considerations for Self-Employed 

1. Documentation – Maintaining accurate and detailed financial records is crucial for self-employed business owners. These records assist in valuing the business during divorce and serve as evidence of the business’s financial health and income-generating capacity.
2. Professional guidance – In conjunction with your divorce attorney, consider hiring a financial professional to provide assistance in valuing your self-employed business. These professionals have the knowledge and skills required to provide an unbiased valuation of your business.

Contact a Warrenville Divorce Attorney

Divorce is never easy, especially for self-employed business owners. Contact the skilled Wheaton divorce lawyer with Hensley Sendek Law for legal aid during this time. Call 630-358-9029 for a free consultation. 

 Source - https://marinercapitaladvisors.com/resources/business-valuation-issues-in-divorce/