William F. Davis, CFP® | Vericrest Private Wealth
You can split a brokerage account before lunch. Half the shares go one way, half go the other, and both sides walk away holding something worth exactly the same amount. A business doesn’t cooperate like that. Someone has to keep running it, someone else has to be made whole for the half that’s walking out the door, and the first question, what is this thing actually worth, turns out to have three different legitimate answers depending on who you ask.
When the business is the largest asset in the marriage, which it often is for founders, practice owners, and family businesses, that disagreement isn’t academic. It’s the whole negotiation.
Why This Isn’t Like Splitting a Brokerage Account
A brokerage account has a price you can look up. A business has a value someone has to construct, and construction leaves room for argument. The business can’t simply be cut in half and handed over. Most of the time, one spouse keeps operating it and the other needs to be bought out, which means the entire outcome hinges on a number that both sides have every incentive to argue in opposite directions.
Three Ways an Appraiser Can Value the Same Business
There are three generally accepted approaches, and a competent appraiser could defend any of them depending on the business.
The income approach values the business on its ability to generate future earnings or cash flow. It’s the standard choice for a profitable, ongoing operation. The market approach compares the business to similar businesses that have actually sold, when that data exists. The asset approach simply totals what the business owns and subtracts what it owes, which tends to be the right call for asset-heavy businesses or ones without much profitability to project forward.
These three methods rarely land on the same number for the same business. That gap is exactly where the negotiation happens, and exactly why the choice of method, not just the math inside it, is worth having your own advisor involved in.
The Fight Hiding Inside the Number: Personal Goodwill vs. Enterprise Goodwill
Here’s the distinction that surprises most business-owner clients the first time it comes up. Not all of a business’s goodwill is created equal in a divorce.
Enterprise goodwill belongs to the business itself: its brand, its systems, its location, its staff, its client list independent of any one person. It transfers with a sale, and it’s generally treated as a marital asset subject to division.
Personal goodwill belongs to the individual: their reputation, their relationships, their particular skill. It doesn’t transfer to a buyer, because a buyer can’t purchase your reputation along with your furniture. Many states treat personal goodwill as separate, non-divisible property, on the theory that it’s really just a stand-in for the owner’s future earning capacity, not an asset that exists independent of them.
Whether your state draws this line, and how sharply, can swing a valuation by a meaningful percentage for anyone whose business is built substantially around them personally: a solo medical or legal practice, a financial advisory practice, a consultancy. This is not a detail to leave to the business’s own accountant to sort out after the fact.
When the Business Started Matters As Much As What It’s Worth
If the business existed before the marriage, only the growth in value during the marriage is typically on the table, not the whole thing. Separating that growth from the value that already existed on the wedding day is its own valuation exercise, and it depends heavily on how much of that growth came from active effort during the marriage versus market conditions or passive appreciation.
There’s a second timing question that gets far less attention than it deserves: the valuation date itself. States differ on whether a business gets valued as of the date of separation, the date of filing, or the date of trial. For a business whose value is moving, growing, shrinking, or just volatile, the choice of date can matter more than the choice of method. This is worth raising with counsel early, not something to discover after a date has already been locked in by default.
What Actually Helps
Get an independent, credentialed valuation, not one performed by the business’s own accountant, however good their bookkeeping is. That’s a conflict of interest wearing a nice suit, and courts generally know it.
Watch for double counting between the property division and support. If the same future earnings are used once to value the business at a high number and again to calculate alimony from those same earnings, that income is effectively being counted twice. It’s a recognized issue worth having your advisor and attorney flag explicitly.
Structure the buyout so it doesn’t force a fire sale. A lump sum sounds cleanest but isn’t always fundable; a structured payout over several years is common, and a life-insurance policy on the paying spouse is a standard way to protect the receiving spouse if something happens before the payout is complete.
Decide early whether co-ownership after the divorce is realistic. It’s legally possible and occasionally chosen, but running a business with a former spouse is rarely as clean in practice as it sounds in a settlement conference.
Why Now
If a divorce involving a business is anywhere on the horizon, the valuation date, the choice of method, and the personal-versus-enterprise-goodwill question are all easier to influence before positions harden than after. Waiting until the appraisal is already underway to ask these questions means reacting to a number instead of shaping how it gets built.
If a business is part of what’s being divided, let’s talk before the valuation is locked in, not after.
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William F. Davis is a CERTIFIED FINANCIAL PLANNER™ and Certified Divorce Financial Analyst™. He is Managing Partner with Vericrest Private Wealth LLC, a financial advisory firm in Newtown, Pennsylvania.
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