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The pros and cons of divorce-related market business valuation
The pros and cons of divorce-related market business valuation
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If you are thinking of ending your marriage, retaining ownership of your business may be one of your top priorities. After all, you have put a significant amount of time, money and effort into your venture. Still, if the business is part of the marital estate, your soon-to-be ex-spouse may have some ownership interest in it.

To negotiate effectively, you must know how much your business is worth. While there a few ways to value a business for divorce purposes, market-based valuation may be the easiest. Nevertheless, there is a major drawback to this valuation method.

How market-based valuation works

Market-based valuation simply considers how much your venture is likely to bring on the open market. To determine your business’s value, you look at the recent sales prices of comparable businesses. This method is often more straightforward than other valuation approaches, as you do not have to do an in-depth accounting to come up with a value estimate.

Why market-based valuation may be a problem

If you have a unique business model, you may have trouble finding a business sale to use for comparison. If sales data is not current, market-based valuation also may not do you much good. Furthermore, even if you use market-based valuation, there is no guarantee you will find a willing buyer should you decide to part with your business.

Even though the simplicity of market-based valuation may be appealing, its drawbacks may force you to use another valuation method. Nevertheless, you may want to employ market-based valuation to give you an initial ballpark figure you can use to start settlement negotiations with your husband or wife.