How are Start-Up Companies Valued in a Divorce?

How are Start-Up Companies Valued in a Divorce?


Start-ups can take a lot of love, care, and hard work to foster into sustainable businesses. When those new ventures have to be divided in a divorce, the future success of the business is the dividable value.  To help develop a plan for valuing a business, one 2013 report by the AICPA, a professional accounting association, outlined the six stages of a business’s lifecycle.

In the first stage, the gears are just beginning to turn, so your business will not be seeing any product revenue and will still be in the initial development stages.  In the second and third stages your business is becoming more aware of challenges and product development is nearing completion.  The final stages of a business take into consideration sales growth and sustainability.  If your divorce occurs within the first stage, or even second stage of your business then some speculation might be asked of you from your departing partner.

What are Some Indicators That My Business Will be Successful?

In attempting to value a start-up business in a divorce, the court will look to certain indicators to value your company. Some indicators of value include the viability of the company’s business plan, the level of communication and support from investors, as well as some outside modeling of financial forecasts. Secondarily, the court may look to your management history and your success in other companies. In some cases, the court might review your hiring decisions and conduct interviews with other managers.

Having a skilled business lawyer on your team who is knowledgeable about valuing early-stage business enterprises is critical in securing a winning position in your divorce.

Will I be Able to Settle My Divorce Out of Court if I Have a Start-Up?

Attempting to negotiate an uncontested divorce is always a part of the separation proceedings. When parties have copious amounts of real property or difficult-to-divide items, it can be more difficult to successfully negotiate a resolution.

However, if both parties have an understanding about the start-up business and can agree to sole ownership by one of the parties or to an equitable division of the assets of the business, then an out-of-court settlement is certainly possible.

Even if you believe that your divorce could be resolved out of court through a settlement agreement, it is important to have a fair accounting of the future value of your start-up business to ensure that your interests are best represented in the settlement agreement. Start-up businesses can be complex and compensation structures can differ between types of business entities. Having a professional on your team who understands all of these nuances can yield the best results.

Contact Us Today

The lawyers at Bennett, Weston, LaJone & Turner, P.C. have experience serving the Dallas area in matters of both business and family law. This unique combination of experience makes them well qualified to assist start-up business owners who are going through divorce proceedings. Contact us today to schedule a consultation to discuss your options.

2021-03-31T08:22:14-05:00August 27th, 2019|Family Law, Business Law|
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