How Is a Closely Held Business Valued in Divorce?

A closely held business is usually valued in divorce by a credentialed business appraiser using one or more of three approaches (income, market and asset), applied as of a valuation date the court or the parties choose. The final number depends heavily on which standard of value your state uses, whether goodwill tied to the owner personally is counted, and whether the business (or part of its growth) is marital at all. Rules differ by state, so treat this as a map for the conversation with counsel, not a formula.

Step 1: Is the business (or its growth) marital?

Before anyone argues about value, counsel sorts out classification:

- Started during the marriage: usually presumed marital in equitable-distribution states.
- Started before the marriage: the original value may be separate, but growth during the marriage can be marital if it came from marital effort or marital funds. In Florida, for example, the enhancement in value and appreciation of a nonmarital asset resulting from either spouse's efforts during the marriage, or from marital funds or assets spent on it, is treated as marital (Fla. Stat. § 61.075).
- Prenup or postnup in place: a valid agreement can settle classification entirely, which often saves more in fees than any valuation fight.

Step 2: Pick the valuation date

States handle this differently. Florida's statute is a useful example: the cut-off for identifying marital assets is generally the earliest of a valid separation agreement (or a date it sets) or the filing of the petition, but the date for valuing them is whatever the judge finds "just and equitable," and different assets can be valued on different dates (Fla. Stat. § 61.075(7)). For a business whose value swung after filing, that choice alone can move the number materially.

Step 3: The three valuation approaches

| Approach | What it measures | Where it fits |
|---|---|---|
| Income (capitalized earnings or discounted cash flow) | Value of expected future earnings, adjusted for risk | Profitable operating companies and professional practices |
| Market (comparable companies or transactions) | What similar businesses have sold for | Industries with reliable sale data |
| Asset (adjusted net assets) | Fair value of assets minus liabilities | Holding companies, real estate entities, or businesses with weak earnings |

Appraisers often run more than one approach and reconcile them. Many still start from the factors in IRS Revenue Ruling 59-60 (the nature and history of the business, the economic and industry outlook, book value and financial condition, earning capacity, dividend-paying capacity, goodwill, prior sales of stock and comparable public companies), which has guided closely held valuations for decades.

Step 4: The adjustments where most of the fight happens

- Normalizing owner compensation. If the owner pays themselves far above or below market salary, earnings get adjusted. This interacts with alimony, so courts watch for the same income being counted twice.
- Personal vs. enterprise goodwill. Goodwill that belongs to the business (brand, systems, contracts) is commonly divisible; goodwill that exists only because of the owner's personal skill and reputation is excluded in many states. Florida's Supreme Court drew that line for professional practices in *Thompson v. Thompson* (1991).
- Discounts. Minority-interest and lack-of-marketability discounts can reduce value; some states limit their use in divorce depending on the standard of value (fair market value vs. "fair value").
- Discretionary and personal expenses. Cars, travel, or family payroll run through the company get added back.
- Buy-sell or operating agreements. A formula price in a shareholder or buy-sell agreement may be persuasive but is not always binding in divorce.

Neutral expert or dueling experts?

Each spouse can hire their own appraiser, or the parties can share a neutral expert. Dueling experts are common when the gap between the owner's and the non-owner spouse's numbers is large; a neutral can cut cost and time when both sides trust the process. Look for credentials such as ABV (AICPA), CVA (NACVA) or ASA (American Society of Appraisers) and real experience testifying in family court.

What the non-owner spouse should ask for

1. Several years of business and personal tax returns, K-1s, financial statements and general ledgers.
2. Payroll records, loans to and from shareholders, and related-party transactions.
3. Governing documents: operating agreement, shareholder agreement, buy-sell agreement.
4. Any prior valuations, offers to buy, or bank loan applications showing value.
5. A forensic review if cash or personal expenses appear to run through the company.

Choosing counsel for a business-valuation divorce

Look for family-law attorneys who regularly work with forensic accountants and appraisers, not only courtroom volume. On Haute Lawyer:

- Find a Lawyer · Family law attorneys in Miami
- Gerald Kornreich — Miami family law, Kornreich & Associates
- Amber Kornreich — Miami family law, Kornreich & Associates

Related reading: How much does a high-net-worth divorce cost? · What is equitable distribution? · What is a buy-sell agreement? · What is a postnuptial agreement?

This article is general information, not legal advice, and doesn't create an attorney-client relationship. Property-division and valuation rules differ by state. Talk to a licensed attorney in your state about your situation.