A business is more than just an asset. It represents years of hard work and reflects your deepest passions. When you own a business and divorce enters the picture, determining the value of this property is a crucial process for which you must prepare.
North Carolina follows equitable distribution laws when dividing marital assets during a divorce. This means courts divide a couple’s property fairly but not equally. If you started your business before marriage, it may remain your own individual property, but only if you kept it completely separate from marital funds and efforts. Understanding these distinctions and taking the following key steps can help you protect what you have built.
Organizing your financial records
Proper documentation forms the foundation of the valuation process. Make sure to gather and organize these financial records:
- Tax returns: Collect three to five years of returns to show your income history and business performance.
- Financial statements: Prepare profit/loss reports and balance sheets that reveal your company’s financial health.
- Asset inventory: List all equipment and intellectual property with current values.
- Business debts: Include all loans, lines of credit and other liabilities that reduce your company’s value.
- Client information: Arrange contracts and accounts receivable to show your revenue potential.
Preparing these records ahead of time helps valuation professionals understand your company’s true worth and prevents delays in your divorce proceedings.
Understand valuation methods
Business valuation professionals use different methods depending on the type of your company. Market-based methods compare your business to similar companies that have sold recently in your industry. Asset-based approaches add up everything your company owns and subtract what you owe. Income-based methods look at how much money your business will likely make in the future. A business appraiser can help you prepare the right information for an accurate valuation.
Start your preparation early
When you rush through valuation, you often make expensive mistakes like missing important assets or failing to show how your business has grown over time. Early preparation gives you time to find any problems in your financial records and allows you to maintain normal business operations. Remember, protecting what you have built depends on your preparation and seeking professional help when needed.