Written By:
Divorce.com Staff
How Are Business Assets Divided in a Divorce?
No one enters a marriage expecting it to end—but when divorce becomes necessary, the process can feel overwhelming, especially when a business is involved.
Dividing marital assets is already complex. Determining the value of a business and deciding how to divide it between spouses can make divorce significantly more complicated and time-consuming.
Business assets are not always marital property. For example, a business owned before marriage in a non-community property state may remain separate property. However, if a business is considered marital property, the court must determine how it should be valued and divided.
This guide explains how business assets are divided in divorce, how businesses are valued, and the legal frameworks courts use to distribute ownership.
How Are Businesses Valued in a Divorce?
Before business assets can be divided, the business must be properly valued. Courts and professional appraisers typically rely on one or more of the following valuation methods:
Income
Assets
Liabilities
Market value
Each method evaluates the business from a different perspective.
Income-Based Valuation (Most Common)
The income approach is the most frequently used method in divorce cases.
With this method, the appraiser estimates the value of the business based on its expected future earnings. To use this approach reliably, the business must:
Be financially stable
Have consistent cash flow
Demonstrate long-term sustainability
This method is often preferred because it reflects the business’s ongoing earning potential rather than just its current holdings.
Asset-Based Valuation
An asset-based valuation focuses on what the business owns.
What Are Business Assets?
Business assets include anything the company owns or uses to generate value, reduce costs, or support future profitability.
Assets are commonly classified as:
Tangible assets: Physical items such as vehicles, equipment, or real estate that typically depreciate over time
Intangible assets: Non-physical items such as trademarks, copyrights, goodwill, or intellectual property
Asset Liquidation
Asset liquidation refers to selling non-liquid assets to generate cash, often to pay creditors or resolve outstanding debts.
Because assets directly contribute to a company’s overall worth, they are a key factor in determining business value during divorce.
Liabilities
A liability is any unpaid debt owed by the business, including:
Loans
Mortgages
Lines of credit
Lease obligations
Recurring operating expenses
During valuation, liabilities are typically subtracted from the total asset value to determine the business’s net worth.
Market-Based Valuation
The market approach estimates value based on comparable businesses that have recently sold.
This method involves:
Analyzing the business as a whole
Determining profitability
Comparing it to similar businesses in the same industry and geographic area
Because reliable market data can be difficult to obtain, this method is less commonly used and often avoided by appraisers.
How Are Business Assets Divided in a Divorce?
For business assets to be divided, the business must be classified as marital property rather than separate property.
If the court determines the business is marital property, it will be divided according to state property division laws, which generally follow one of two systems:
Equitable distribution
Community property
What Is Equitable Distribution?
Equitable distribution is the most common property division system in the United States.
Under equitable distribution laws:
Property is divided fairly, not necessarily equally
Courts consider each spouse’s contributions and circumstances
One spouse may receive a larger share if equity demands it
For example, a spouse who contributed significantly more time, money, or labor to a business may receive a larger ownership interest.
Factors Considered in Equitable Distribution
Courts may evaluate factors such as:
Length of the marriage
Each spouse’s financial and non-financial contributions
Each spouse’s role in building or operating the business
Future earning capacity
Spouses may also divide assets by mutual agreement without court intervention if they can reach a settlement.
States That Use Equitable Distribution
Most U.S. states follow equitable distribution. Only a small group of states follow community property rules instead.
What Is Community Property?
Under community property law, most assets acquired during marriage are owned equally by both spouses and are divided 50/50 in divorce.
In community property states, business assets are generally split evenly—regardless of which spouse contributed more—unless a valid agreement states otherwise.
Community Property States
The following states apply community property rules:
Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin
In these states, even a business started by one spouse during the marriage is typically subject to equal division unless protected by a prenuptial or postnuptial agreement.
Alaska, South Dakota, and Tennessee allow couples to opt into community property by agreement.
3 Common Ways to Divide a Business in a Divorce
Once a business has been valued, spouses typically choose one of the following methods to divide it:
1. Buyout
One spouse purchases the other’s share and becomes the sole owner. This option works well when only one spouse wants to continue running the business.
2. Co-Ownership
Some former spouses continue operating the business together after divorce. This arrangement works best in amicable separations with clear boundaries and governance.
3. Sell the Business
If neither spouse wants to retain ownership, the business can be sold and the proceeds divided. This option may be financially advantageous depending on market conditions.
Final Thoughts on Dividing Business Assets in Divorce
Dividing business assets during divorce can be legally and financially complex—but it does not have to be overwhelming.
Understanding how businesses are valued, how state laws apply, and which division methods are available can help you make informed decisions and avoid costly disputes.
If you need guidance, Divorce.com offers tools and services designed to help simplify the divorce process and reduce stress—especially when high-value assets like businesses are involved.
Sources
Marital assets need to be distributed evenly, and determining the value of a business and how to divide it between two people can be a difficult (and often lengthy) process.
Business assets aren’t always marital property (ex: when one spouse has an existing business before marriage in a non-community property state), but if yours are, keep reading.
How Are Businesses Valued in a Divorce?
There are a few different ways that businesses can be valued in the event of a divorce:
Income
Assets
Liabilities
Current Market Values
The income valuation is the most common and preferred way for appraisers to determine the value of a business.
Income
With an income-based approach, the appraiser determines the value of the business based on its revenue. In the case of a divorce, this refers to what the company is anticipated to earn in the future. For this approach to be effective, the company has to be stable and have the ability to sustain itself over time. For a business to be sustainable, it must have regular cash flow.
Assets
An asset is defined as any part of a company that provides value in the form of revenue and stands to provide future value as well. Assets can be categorized in a few ways — how they are used by the business, whether they are considered intangible or tangible, and how easily they can be liquidated into cash.
How do businesses use assets? Business assets are items a company owns, manufactures, or otherwise benefits from in some monetary way. They can be used to create cash flow, cut costs, or set a foundation for future sustainability and profitability.
What are tangible properties? A tangible property is an asset that exists in physical form and has a value that depreciates over time, like a vehicle, for example.
What are intangible properties? An intangible property is an asset that does not exist in physical form and has no recorded value, like a trademark or copyright, for example.
What does it mean to liquidate assets? Asset liquidation is the process of selling non-liquid holdings on the market to obtain cash. Businesses often do this to pay off large debts owed to creditors.
Business assets are a key indicator of overall worth and, therefore, a primary factor in determining the value of a business.
Liabilities
A liability is an unpaid debt owed by a company, such as a mortgage balance or past due bills. Liabilities can be factored into valuations when the appraiser takes the amount it will take to eliminate the outstanding debt and subtracts it from the value of the other assets.
Other liabilities include lines of credit and recurring costs that are not easy to eliminate on a whim, such as building rent or loan payments.
Market
This approach is best for businesses that are likely to be sold soon. In this case, the company would be valued just like any other real estate property would be. Here’s how it works.
The appraiser analyzes the business. First, they will take a look at the business as a whole in order to begin estimating its worth.
Profitability is determined. For a business to be comparable to others that have recently been sold on the market, the appraiser has to determine its profitability. To determine profitability, the appraiser must have access to recent sales data and a list of companies in the same niche that are in close geographical proximity and bring in a similar income to the business in question.
The business is compared to other similar ones that were recently sold. With access to the proper information, the appraiser can then compare the businesses to determine how the company in question might perform on the market if it were to go up for sale.
This market approach is very tricky to execute, and appraisers often avoid this option due to the difficulty of gathering data from several businesses at once. The information can be hard to find or sometimes not available at all.
How Are Business Assets Divided During a Divorce?
For business assets to be divided during a divorce, they must be deemed as marital assets instead of individual property. When a business is determined to be marital property, its assets will be distributed accordingly. The distribution also varies according to individual state laws.
What Is Equitable Distribution?
Equitable distribution is a kind of divorce law that dictates marital property division to be equitable. Equitable doesn’t necessarily mean equal (although it can); it means that the assets will be divided fairly. This could mean a former spouse is given an 80% share of the business based on their contributions.
What Factors Are Considered In Equitable Distribution?
Several factors are considered when determining how business assets should be divided equitably, such as how much each spouse contributed financially to the company and how long they’ve been married.
If one spouse invested more funds into the business than the other, they would hold more equity and likely be awarded a larger stake in the business unless both parties agree otherwise.
In states that follow the equitable distribution theory, spouses are allowed to handle the division of assets on their own if they are able to come to a mutual agreement.
Where Is Equitable Distribution Used?
Equitable distribution states are the most common type in the United States. The states that follow this practice include the following.
Alabama, Arkansas, Colorado, Connecticut, Washington D.C., Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Virginia, West Virginia, Wyoming.
The few states that don’t follow equitable distribution are either community property states or states that allow spouses to decide on their own if they want to follow community property laws.
What Is Community Property?
Community property is a property that is owned by a married couple. In states that follow community property laws, family business assets are treated like any other marital asset and therefore divided evenly.
Where Is Community Property Used?
Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are all community property states. This means couples who get a divorce in any of these states will each get a 50/50 portion of the business, no matter how much either of them contributed.
It also means that a spouse who established a business on their own prior to being married would have to split its assets in the event of a divorce unless a prenuptial agreement was on the table stating otherwise.
Alaska, South Dakota, and Tennessee allow the couple to decide on their own if they want to follow community property laws or not.
3 Common Methods of Dividing a Business In a Divorce
There are a few different ways that business assets can be divided during a divorce. Here are some examples.
Buyout. In this case, the spouse that can afford to do so would purchase the business shares of the other and become the sole owner. This is a good option for a situation where one spouse isn’t very interested in continuing to be a part of the company after the divorce.
Co-ownership. Ex-couples can also decide to continue running their business as a unit. This is great for situations that end mutually and without spite. Separations can be amicable, and couples often continue successfully running their companies together even after deciding to go their separate ways.
Sell the business. A third option is to sell. Depending on the market, selling a company could be a smart financial move. A couple might not want to continue running a business together when they’re no longer in a relationship. If both agree, they can sell, split the funds, and go their separate ways.
The division of assets can be a complicated and stressful process, but it doesn’t have to be. We’ve figured out a way to make divorce proceedings quick, simple, and affordable for our customers.
