If you or your spouse is a business owner, or if you own one jointly, knowing how to assess the business’s value will be crucial when thinking about property division.
Unless you have already exempted the business from the division process, through a prenuptial or postnuptial agreement, its value will be important, even if you have no interest in leaving with a share of the company. There are several different methods, but here are two popular ones:
EBITDA or SDE
EBITDA stands for earnings before interest, taxes, depreciation and amortization. SDE stands for sellers’ discretionary earnings. An accountant can help you work out how to do the numbers.
The main difference is that SDE calculations include any salary or benefits the owner receives. Typically, this is more appropriate for smaller businesses. Let’s say your spouse’s business is not worth much on paper, but they take a salary and company car out of it, plus the ability to write off other expenses, such as creating and furnishing a home office. Failing to factor those things in and only appraising the business using EBITDA could put you at a disadvantage.
Note, too, that some businesses could be worth much more in a few years, and some much less. On top of that, there is the difficult question of how decisions about dividing the business could affect its future value. Let’s say that a court awards you a significant share of a business your spouse feels you had no right to get any of. If your spouse reacts by neglecting the business, then your victory might soon feel hollow.
Learning more about this complex topic from someone with appropriate legal experience can help you make informed choices.