Anderson & Boback Logo

How Do You Properly Value a Business?

Categorized as Illinois Divorce, Property Division

If one or both parties own a business, and an agreement on its value cannot be reached, a business valuation will usually be ordered. There are many aspects of the business that valuators analyze and clients sometimes do not understand the method to the madness, so to speak. The following is an explanation of the two more common valuation misunderstandings.

* Normalization adjustments: Normalizing the historical earnings is a necessary step in the valuation process. Sometimes, during the most recent year prior to the divorce, an extraordinary or non-recurring expense has hit the business and effected profits. Normalization adjustments are then made to remove extraordinary or non-recurring items (be it income or expense) from the historical earnings. The valuation expert’s role is to adjust historical earnings to represent to a reasonable degree of certainty the economic reality of an ongoing business.

* Motivation of the owner: Many businesses experience cyclical patterns of income, while others follow a continuing growth pattern. The pattern of the business’ profits for many years prior to the divorce are an important indication of future earning potential. However, sometimes during or right before a divorce, profits fall drastically. It could be that the owner is intentionally devaluing his/her business, but it could also be that due to the pending divorce, the business owner’s motivation to sell dropped. The owner may not be spending as much time at work in an attempt to save his marriage or he/she may be experiencing some emotional issues. In either case, a drop in profits immediately preceding the divorce is not always caused by bad faith.

If you do anticipate needing a business valuation, you should retain an expert early. The valuator will need to review many documents and discovery prior to the actual report being furnished may be extensive.

Was this information helpful?

You May Also Like

This is a review of the Illinois family law case of In re Marriage of Portillo for an order of protection and supervised visitation. The opinion was filed on September 23, 2021. Case Background Julie Portillo filed a petition for…

One of the costliest parts of divorce litigation is discovery. Written Discovery is the request for you to answer questions in detail about your income, assets, standard of living, etc. These request will ask you to produce a detailed list…

The question “How can I modify my child support” is one of the most frequently asked questions in family law. Child support is often a hotly contested issue, as many parents feel like they are paying too much, or their…

The latest child relocation case -  comes out of Lake County, Illinois, and it denied Nuriana Levites the right to relocate her daughter to California.  In re Marriage of Dmitry Levites v. Nuriana Levites It seemed clear from the evidence…

Second Parent Adoptions are typically done when a spouse has a child from a previous relationship and the circumstances allow that child to be adopted by the other spouse.  As an example:  Wife and Husband get married and Wife has…

If you’re convinced that your marriage is irretrievably broken and divorce is coming, there are things you can do now to prepare and protect yourself in the divorce process. Here are 10 steps to take if you believe your spouse…

Anderson & Boback small logo

Download our Divorce Planning Guide today!

Get the information you need to prepare for divorce with our free resource Guide to Planning for Your Divorce.

What our clients are saying

Schedule a Discreet Consultation Today!

    Firm Overview

    Anderson & Boback is a highly-respected, experienced Chicago family law firm, skilled in negotiation and litigation. When divorce and other family law issues make your life chaotic and uncertain, you want your case resolved as quickly and fairly as possible. Call Now 312-715-0870