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Business valuation includes intangible factors

The spouse of a business owner facing divorce may be justifiably concerned about how the business will impact the divorce proceedings. If no prenuptial agreement exists, the business is likely subject to property division according to Texas community property laws. This means that a business valuation may be necessary in order to determine how the business will be apportioned between the owner and the spouse.

Counting inventory and pricing equipment is only part of finding the value of a business. In addition to the tangible assets and liabilities, a business has value in its public reputation, known as goodwill. A business in good standing with satisfied customers and a recognizable brand may have significant value in its goodwill above what can be calculated in its accounts. However, because goodwill is intangible, its valuation may be subjective.

Goodwill may also include the quality of employees and managers as well as the caliber of clients and suppliers. A valuation may also weigh trade secrets and any copyrights, patents or trademarks the business owner holds. These items may be valued according to estimates of future income from those factors or by the cost of rebuilding that goodwill from the start. The more value placed on the business based on these factors, the larger the total assets to be divided by the divorcing couple.

Building goodwill in a business is often a top priority, so the spouse of a business owner will certainly not want to overlook that element when seeking a business valuation in the face of a divorce. Including goodwill in the worth of a business to raise its estimated value means increasing the spouse's potential share during property division. Having an attorney with resources that include business valuation experts may improve the chances that the spouse of a Texas business owner will receive his or her share of all community property assets.

Source: quickbooks.intuit.com, "What's Business Goodwill, and How Do You Account for It in Your Books?", April Maguire, Accessed on June 19, 2017

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