Business Valuation in a Divorce: Free Buyout Calculator
In a divorce, an appraiser values your business at the price a willing buyer would pay, on a date your state sets.
It is then split or bought out under your state’s property rules. Use the calculator below for a planning range before you pay for a formal appraisal.
- How is a business valued in a divorce?
- Is my business marital property or separate property?
- What happens to goodwill in a divorce?
- What date is the business valued on?
- How do I buy out my spouse's share of the business?
- Can I sell my business before or during a divorce?
- Do both spouses need their own appraiser?
- Common mistakes when valuing a business in a divorce
- Who this calculator isn't for
- What to do next
- Frequently Asked Questions
How is a business valued in a divorce?
Appraisers value a business in a divorce the same way they value one for a sale, using three standard approaches and weighing them:
- Market approach: what similar businesses actually sold for, as a multiple of earnings. For owner-run businesses, the earnings figure is usually seller’s discretionary earnings (SDE), meaning profit plus the owner’s pay and perks. The calculator on this page uses this approach.
- Income approach: the value today of the profit the business is expected to earn in the future.
- Asset approach: what the equipment, inventory and other assets are worth, minus the debts. This one matters most for businesses with thin profits or heavy equipment.
Most courts use fair market value: the price a willing buyer and willing seller would agree on, with neither forced to act. A few use a different standard, so ask your attorney which applies.
Two businesses with the same revenue can be worth very different amounts. Owner dependence, customer concentration, repeat revenue and clean records all move the multiple.
The calculator shows which of these help and hurt your number, in dollars.
Is my business marital property or separate property?
A business started or bought during the marriage is usually marital property in every state. What differs is how it gets divided.
Nine states use community property rules, and the rest use equitable distribution. See the rule in every state.
| Rule | States | How a marital business is divided |
|---|---|---|
| Community property | Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin | Owned equally by both spouses. A 50% share is the starting point. |
| Equitable distribution | The other 41 states and Washington, D.C. | Divided fairly, which isn’t always equally. Courts weigh things like each spouse’s role in the business, the length of the marriage and each spouse’s income. |
A business you owned before the marriage usually starts out as separate property. Growth during the marriage can still count as marital.
That is most likely when your work or marital money built it. A prenup, or one signed after the wedding, can override all of this, so bring a copy to your attorney.
For how much a spouse can claim, read can your spouse take half your business.
What happens to goodwill in a divorce?
Goodwill is the value above a business’s hard assets. States split it two ways.
- Enterprise goodwill belongs to the business itself: its name, location, systems and staff.
- Personal goodwill is tied to the owner, such as a dentist’s patient relationships or a contractor’s reputation.
Some states leave personal goodwill out of the marital estate. Texas has done so since Nail v. Nail (1972), and Florida since Thompson v. Thompson (1991). California counts it as community property, following In re Marriage of Foster (1974).
This matters most for a business that leans on its owner, such as a practice. Where personal goodwill is excluded, the marital value can land below the sale price.
The calculator gives the sale value range. Treat it as the upper end of what a court might use.
What date is the business valued on?
The valuation date depends on the state. Courts commonly use one of three: when you separated, when the divorce was filed, or a date close to trial.
Some judges choose case by case. The date matters when the business has grown or shrunk since you separated, so confirm it before an appraiser starts.
How do I buy out my spouse’s share of the business?
Most owners keep the business and pay the other spouse for their share. There are five common ways to settle it:
- Offset with other assets. You keep the business, and your spouse takes more of the house equity, retirement accounts or savings. No cash changes hands.
- Pay cash. You pay from savings or with a loan. Business acquisition loans, including the government-backed 7(a) program, can fund a change of ownership.
- Pay over time. You pay in installments under a written note, usually secured by the business.
- Sell to an outside buyer. You sell the business and split what’s left after debts and taxes.
- Keep owning it together. This is rare and only works when you can still run a business together.
Taxes differ between these options. A transfer between spouses as part of a divorce is generally not taxed, under section 1041 of the tax code.
A sale to an outside buyer is taxable. Have a CPA run the numbers on each option before you agree to one.
For the full process and paperwork, see how to buy out your spouse’s share of a business.
Can I sell my business before or during a divorce?
You can sell during a divorce if your spouse agrees or the court approves. Selling on your own usually is not allowed.
- After filing, automatic orders often apply. They bar either spouse from transferring marital property without consent. California prints those orders on the divorce summons.
- Selling quietly before you file is not a way around it. A court can undo the sale, or charge the value to your share, and it costs you credibility with the judge.
More on timing in can you sell your business before or during a divorce.
Many couples agree to sell the business as part of the settlement, especially when neither spouse can fund a buyout. If that’s your plan, you can list your business free with Deal Prospectors and get a free full valuation.
Do both spouses need their own appraiser?
You do not have to hire separate appraisers. Many couples hire one neutral appraiser together, which halves the cost and avoids a fight between two reports.
When the business is large, or the spouses disagree sharply, each side often hires its own. Get a written fee quote either way, and ask what court testimony costs.
Common mistakes when valuing a business in a divorce
- Using tax-return profit as the value basis. Returns often show low profit because of owner perks and write-offs. Appraisers add those back, and so does the calculator’s SDE figure.
- Forgetting the debt. Sale values assume the business is sold free of debt. Subtract business loans before you agree on a buyout number.
- Counting the same income twice. If the business value is based on future profit, and support is also based on that profit, the paying spouse can end up paying for the same dollars twice. Raise this with your attorney. States handle it differently.
- Hiding income or running the business down. Appraisers and forensic accountants look for it, and judges penalize it.
- Ignoring the valuation date. A strong or weak year after separation can swing the number, depending on which date your state uses.
- Treating an online estimate as a court value. The calculator is for planning. A judge relies on a formal appraisal or on a number both spouses agree to.
Who this calculator isn’t for
The calculator is built for privately owned small businesses that make a profit.
It will not help with public companies, startups that make no money yet, or holding companies whose value is mostly real estate. Value real estate separately, even when the business owns it.
What to do next
- Run the calculator above to get a value range and the share range.
- Pull together three years of tax returns, profit and loss statements and a list of business debts.
- Ask your attorney which property rule, valuation date and goodwill rule your state uses.
- Get a formal appraisal if your spouse doesn’t agree on a number.
- If selling is part of the settlement, list your business free. If you just want a value without the divorce angle, use the business valuation calculator.
Frequently Asked Questions
For a small business, expect four figures rather than three, and more if the appraiser has to testify. One joint appraiser costs about half what two cost. Ask for the fee in writing, and ask separately what court testimony adds.
Often because of personal goodwill. In states that leave the owner’s own reputation out of the marital pot, the court value strips out part of what a buyer would pay. The gap is widest for practices and other owner-run businesses.
Yes, and many couples do. A judge will usually accept a figure both sides sign up to, which saves the cost of two appraisals. Run the numbers first so you know whether the figure on the table is near the real range.
Yes. Loans, lines of credit and unpaid taxes all reduce what the share is worth. Sale multiples assume the business changes hands free of debt, so subtract the debt before you turn a value into a buyout figure.
No. It is a planning range, built to tell you roughly where you stand before you spend money. A judge relies on a formal appraisal, or on a figure both spouses agree to in the settlement.
This page is general information, not legal, tax or financial advice. Divorce and property rules vary by state and change over time. Talk to a family law attorney in your state before you make decisions.