The Illinois Marriage and Dissolution of Marriage Act makes the answer to this question seem simple and indicates courts will “employ a fair market value standard.” However, this raises another question. How does the court determine “fair market value” for a marital business? There are three common approaches attorneys and the courts use to value businesses in dissolution matters.

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1) The Market Approach: A market approach uses the recent selling prices of similar assets to determine the value of the asset at issue. For example, if your soon to be ex-spouse owns a restaurant, the fair market value would be determined using the recent selling prices of similar restaurants in the area.
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2) The Income Approach: This approach creates a value using projections for future income that will be generated by the business. Expense reports, revenue reports and tax returns will all be reviewed in order to come to a fair market value for the business. Within the income approach there are several methods including the capitalization of earnings method, the discounted cash flow method and the excess earnings method.
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3) The Asset Approach: This approach adds up the value of the business’s assets, enterprise good will and accounts receivable. Enterprise goodwill can be hard to value but can have a huge impact on the value of a business. For example, the public reputation of a locally owned family restaurant can have value. The reputation of the family restaurant that has been in the community for generations would have a higher valued enterprise good will than would a franchise restaurant that opened a month ago. The enterprise good will has value because the reputation of the established business is in place even if ownership changes. The businesses’ debts would then be subtracted from the enterprise goodwill, assets and accounts receivable in order to come to a business value.

Business valuation in dissolutions can become even more complex when Partnerships and Corporations are involved. In these cases, the partnership, shareholder, and/or operating agreements will need to be reviewed in order to come to a proper valuation.

 

If you are going through a dissolution matter and a marital business is at issue, contact the attorneys at Allison Mosby-Scott to ensure your business is properly valued and your legal needs are met.

 

Michael Fenger

Attorney at Law