How a business is evaluated as an asset in Washington

On Behalf of | Jan 5, 2022 | Family Law |

Your business in Washington is probably the most valuable asset in your life. Therefore, a divorce court must find the best way to divide it in a manner deemed fair. In order to do that, here’s how the court will value your business.

Divorce in Washington

Divorce for business owners in Washington is a little complex. The court must first determine which part of your business is separate property and communal. Even if you started the business on your own, once you marry, the appreciation during your marriage may become marital.

Your spouse would have a bigger claim if they did anything to contribute to the growth of the business. Also, giving you support by taking care of the home and kids is effort enough to demand a significant share of the business.

Business valuation

Business appraisers value businesses by a combination of three different approaches. These are:

• Market-based approach
• Asset-based approach
• Income-based approach

Market-based approaches focus on the goodwill of the business. In other words, what’s your reputation on the market? A business with a good reputation is valued higher. The appraiser will also account for any changes that might increase or decrease the business’s value in the future.

The asset-based approach counts the assets that the company has at the time of valuation. The appraiser will look at both tangible (cash, investments, buildings, equipment, vehicles and inventory) and intangible assets (the value of the intellectual property, patents, trademarks, copyrights and brand recognition).

Income-based approaches include looking at revenues, expenses, debts, taxes and profits. The appraiser will determine the net value of the business after subtracting all the deductions.

Some spouses hire a joint forensic accountant when determining the value of their business. While it saves on costs, this is usually not the best approach. It may be best for you to hire your own professional accountant to determine your business’s value and use that as the basis for your divorce negotiations.