Selling a Business During a Divorce: What You Need to Know
Expert insight on how to navigate the business sale process during a divorce.
Mr. Smith owns a few laundromats. He’s operated them for 15 years and has been married for 19. For the past few years, Mr. Smith has been considering selling. He spoke with a few business brokers and decided that if he moved forward, First Choice would be his preferred choice.
But now, his hand has been forced—his wife has filed for divorce. Mr. Smith must now decide whether to sell the laundromats or have them professionally valued and buy out his spouse’s half of the business.
To help both us and Mr. Smith better understand his options, we asked Las Vegas divorce attorney Rock Rocheleau for insight.
Nevada is a community property state, which means that in a divorce, all property and assets acquired during the marriage must be valued and divided equally. For a business—just like a house—this can be done either by hiring an appraiser or putting the asset on the market.
If a business broker sells the laundromats, Mr. Smith can argue that their market value is what a buyer is actually willing to pay. This often makes selling the business the most straightforward option.
But what if Mr. Smith wants to keep the laundromats?
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How Is a Business Valued?
There are three main approaches used to determine the value of a business, particularly when the business is not being sold on the open market:
🔹 Market-Based Approach
This method compares the business to similar businesses that have recently sold. Just like valuing a house, an appraiser uses available data to assign a fair market value based on what other, similar businesses have sold for.
However, this method has some challenges:
- It’s often difficult to find truly comparable businesses.
- Sales data may be influenced by factors that aren’t publicly known, like seller motivation or one-time discounts.
- The size, profitability, or location of comparable businesses may differ significantly.
- Intangible assets (or lack thereof) may skew the value.
- In niche industries, comparables may not exist, forcing appraisers to reference broader categories—which can either inflate or undervalue the business.
Because of these limitations, the market approach can be unreliable when dividing a community property business during divorce proceedings.
🔹 Asset-Based Approach
This method works best for businesses with significant tangible assets such as real estate, equipment, inventory, and accounts receivable. The appraiser calculates the value by adding up the assets and subtracting liabilities.
That sounds simple—but it often isn’t. Most businesses also have intangible assets, like goodwill, brand recognition, client contracts, or intellectual property, which this method does not consider.
For businesses like professional practices, where much of the value lies in reputation and relationships, the asset approach typically undervalues the true worth.
🔹 Income-Based Approach
This is the most commonly used approach for small to mid-sized businesses. It evaluates the business based on its future earning potential, using methods like discounted cash flow (DCF) and capitalization of earnings.
The appraiser looks at the business’s historical earnings, compares them to similar companies, and factors in the risk of failure or market volatility to estimate present value.
The downside? It’s a projection. It assumes future performance will resemble the past, which isn’t guaranteed. Still, it tends to be the most balanced and realistic method for businesses that generate steady income.
🔍 What’s Best for Mr. Smith?
Mr. Smith would benefit from hiring a valuation expert to assess his business using the income-based approach—while also working with a business broker to determine how much the laundromats could sell for on the open market.
That way, Mr. Smith can compare both results and decide which path produces the highest value—whether he sells the business or keeps it and buys out his spouse’s share.
At First Choice Business Brokers of East Tennessee and Nashville, we help owners in complex life transitions—like divorce—navigate the valuation and sale process with confidence, accuracy, and privacy.
