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Valuing a business for divorce purposes

Starting and growing a small business is often an effective way to secure financial freedom. If you started your business during a marriage that is now on the rocks, though, you may wonder what happens to your venture after the divorce. 

If you contemplate leaving your spouse, you have a variety of things to consider. Likely near the top of your list of considerations is your business. Because judges in Connecticut divide property based on what is equitable, you may have to either sell your business and split its proceeds with your spouse or buy out your partner. Either way, you need to know how much your business is worth. There are two common ways to come up with a number: 

Book valuation 

One way to determine the worth of a small business is to determine its book value. If you take this approach, you need to consider the value of your company’s assets minus depreciation. While many business assets, such as vehicles, machinery and equipment, depreciate over time, some of your company’s holdings, like real property, may increase in value. 

Market valuation 

Another common way to measure the value of a business is to look at its worth on the open market. With market valuation, you must determine what an outside buyer would be willing to pay for your small business. Of course, a variety of factors go into this determination. For example, you must consider earnings potential, outstanding debts, intellectual property, location and other matters that may either drive the worth of your business upward or downward. 

Divorce proceedings can take a considerable amount of time to conclude. While working with an accountant or business expert may help you correctly value your business, time may cause the valuation to become inaccurate. Therefore, if your divorce drags on, you may need to determine the value of your company more than once to protect your financial interests.

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