In a divorce, a business owned by either spouse may be subject to claim as an asset. This is commonplace in divorce. Standards have developed over decades to determine the value of a business, which in many cases uses a methodology involving a review of the historic income of the business.
It goes without saying that Covid-19 has significantly impacted income for most businesses. Many litigants, attorneys and Judges are struggling with this issue as it impacts the process of valuing a business. For example, if a business has always had income of $100,000 per year, and in 2020 had income of $50,000, how does this fit into the calculation?
More importantly, how on earth can we predict what the world will look like in the future? Will the reduced income continue?
These concerns have made business valuation very challenging, to say the least. Assuming that there has been no significant loss of income due to Covid-19, the old, traditional models of valuation should remain sound. However, if there has been a big reduction, the real question is whether the reduction is permanent or temporary. If it is permanent, the value will be reduced. If temporary, it should have little or no impact. The real problem is that we cannot predict the future, and it will likely take years to fully assess the financial impact of Covid-19 on nay business.
