The stakes may be quite high when it comes time to get a business valuation in divorce. Frequently, business valuation has a major impact on entrepreneurs and their spouses when they divorce because the business may be their most valuable asset. It may help to have a working knowledge of the valuation process and how taxation may affect many aspects of a business valuation in divorce.
Chapter 6 of my book, Frumkes & Vertz on Divorce Taxation, is devoted to analyzing the tax aspects of business valuation, with special attention to the issues and strategies applicable to divorce and child support disputes.
Tax affects all aspects of business valuation in divorce because valuation is frequently based upon the income generated by a business. The business earnings are projected into the future, after payment of expenses and taxes, to calculate their net present value.
In other words, under the income approach, the value of a business is equal to what a buyer would pay to receive a future stream of income from the business.
Several tax-related issues may arise when performing a business valuation in divorce under the income approach: