Business Valuation in Indiana Divorce: 5 Key Issues
For business owners, divorce brings unique financial challenges, especially when a business is considered part of the marital estate. In Indiana, all property owned by either spouse—including businesses—is subject to division under the "one-pot" theory. But how is a business valued, and what factors impact its division in divorce?
This guide explains five critical issues related to business valuation in Indiana divorce, helping you understand what to expect and how to protect your financial interests.
📞 Have questions? Call Vining Legal at (317) 759-3225 or schedule a consultation.
The "One-Pot" Theory and Business Ownership in Indiana Divorce
Indiana law follows the "one-pot" theory when dividing marital assets. Under Indiana Code § 31-15-7-4, this means:
✔️ All property owned by either spouse—regardless of when or how it was acquired—is subject to division.
✔️ A business, even if founded before the marriage, is considered part of the marital estate.
✔️ The court has discretion in dividing assets equitably, which may not always mean a 50/50 split.
Even if one spouse is the sole owner of the business, the value of that business must still be accounted for in property division.
5 Key Issues in Business Valuation During Divorce
1. The Date of Valuation Matters
Indiana courts have discretion in choosing a valuation date for a business, which can significantly impact how much the business is worth during the divorce.
✔️ The valuation date may be set as the filing date or a later date—depending on when the court believes is most fair.
✔️ The closing of the marital pot concept means any growth (or loss) in business value after a certain date may not be included.
📌 Example:
A business that was worth $500,000 when the divorce was filed may increase to $700,000 by the time of trial. If the court chooses the earlier date, the additional $200,000 in value may not be subject to division.
2. The Importance of Evidence in Business Valuation
To determine a business’s worth, courts rely on professional appraisals and financial documentation. A spouse who owns the business cannot simply estimate its value—the court requires credible evidence.
✔️ A business appraisal is critical to ensuring an accurate valuation.
✔️ Courts often consider a range of values, rather than one fixed number.
📌 Example:
If one expert values the business at $2 million, while another values it at $1.5 million, the court may use an average or select the most credible assessment.
3. The Three Main Valuation Approaches
There are three primary ways to value a business in divorce:
✔️ Asset-Based Approach
Calculates the net asset value of the business (assets minus liabilities).
Best for businesses with high tangible assets, like real estate or equipment.
✔️ Market Approach
Compares the business to similar businesses that have been sold.
Often used for closely held businesses or professional practices.
✔️ Income Approach
Focuses on future earning potential, discounted to present value.
Commonly used for service-based businesses and corporations.
Each method produces different results, making it essential to have a qualified business valuation expert in your divorce case.
4. The Role of Goodwill in Business Valuation
Not all business value is tangible—some value comes from goodwill, which can be classified into:
✔️ Enterprise Goodwill: Value tied to the business itself (e.g., brand reputation, client base). This is subject to division.
✔️ Personal Goodwill: Value tied to an individual’s skills or reputation (e.g., a doctor’s practice). This is NOT subject to division.
📌 Example:
If a dentist owns a practice, enterprise goodwill would include patient records and office equipment. Personal goodwill would be based on the dentist’s skill—since the business value declines if they leave.
Courts cannot divide personal goodwill, making it a key factor in negotiations.
5. Valuation Discounts: Lack of Marketability & Control
Two common valuation discounts in business divorce cases are:
✔️ Lack of Marketability Discount (LOM):
Applies when a business cannot easily be sold on the open market.
Typically reduces the business value by 10–30%.
✔️ Lack of Control Discount (LOC):
Used when a spouse owns a minority interest in the business.
The court may reduce the value due to limited decision-making power.
📌 Example:
If a spouse owns a 30% stake in a family business worth $1 million, the Lack of Control Discount may reduce their share’s value from $300,000 to $250,000.
Why You Need an Expert for Business Valuation in Divorce
✔️ Business valuation is complex and requires financial expertise.
✔️ A valuation expert ensures fair assessment and prevents undervaluation.
✔️ Having an experienced Indiana divorce attorney helps you protect your financial interests.
📞 Need help navigating a business valuation in divorce? Call Vining Legal at (317) 759-3225 or schedule a consultation.
Conclusion
Business valuation in an Indiana divorce is a highly detailed process that can significantly impact your financial future. Courts consider valuation dates, evidence, goodwill, and discounts, making expert legal and financial guidance crucial.
✔️ Indiana follows the one-pot theory—businesses are marital property.
✔️ Professional appraisals and financial documentation are essential.
✔️ Goodwill and valuation discounts can reduce the business’s divisible value.
📅 Protect your assets—schedule a consultation today.
