When a marriage involves a closely held business, the hardest question in the divorce is often the simplest to ask: what is it worth?

It’s rarely a neutral question. The spouse who owns the business tends to see a low number. The spouse who doesn’t tends to see a high one. Both are looking at the same company. Getting to the real figure — the one a court will accept — is where a divorce involving a business is won or lost. Here’s how that number actually gets built.

The standard: fair market value

Texas values a business interest at its fair market value — “the price the property will bring when offered for sale by one who desires to sell, but is not obliged to sell, and is bought by one who desires to buy, but is under no necessity of buying.”

One point catches people off guard: the business is not valued on the assumption that the owner stays. The valuation assumes the owner could walk away and open a competing business tomorrow. That single assumption is what pulls goodwill into the analysis — and goodwill is where the biggest fights happen.

The three ways a business gets valued

Closely held businesses are almost always valued by a forensic valuation expert who can then defend the methodology in court. There are three accepted approaches, and the right one depends on the business.

  1. Income approach. Values the business on the income stream it produces — projected future income divided by a capitalization rate that reflects market returns and risk. Best suited to assets that generate income, like commercial rental property or mineral interests.
  2. Cost (asset) approach. Values the equity by adding up the entity’s assets and subtracting its liabilities. Fits businesses whose value lives in their assets, or professional practices with a high share of personal goodwill — think a solo doctor’s or lawyer’s practice.
  3. Comparable sales (market) approach. Values the business by comparing it to similar businesses that have actually sold. Clean in theory, but for small, closely held companies, genuinely comparable sales are hard to find.

    A credible valuation isn’t about picking the approach that produces the number you want. It’s about applying the right one to the business in front of you — and being able to prove it.

    Goodwill: the part most fights are about

    Goodwill is the intangible value of a business beyond its hard assets — reputation, customer relationships, the benefit acquired beyond the mere value of the property employed. It’s real value, and it’s often the largest and most contested piece. There are two kinds, and the difference decides who gets what.

    1. Business (commercial) goodwill belongs to the entity. It can be characterized as community or separate property and divided accordingly.
    2. Professional (personal) goodwill belongs to the individual spouse. In Texas it is neither community nor separate property — meaning it is not divided at all.

    That distinction is worth real money. Value assigned to personal goodwill comes out of the divisible estate; value assigned to business goodwill stays in it. Goodwill is measured assuming no non-compete exists — again, on the premise that the owner is free to walk out and compete.

    Two discounts that move the number

    Once a base value is set, two adjustments often follow — and both can swing the final figure significantly.

    1. Discount for lack of marketability. A private business can’t be sold as quickly or easily as a publicly traded one. That illiquidity reduces what a willing buyer would pay, so the value is discounted to reflect it.
    2. Discount for lack of control. A minority interest — one that can’t direct the company’s decisions — is worth less per share than a controlling stake, and is typically discounted accordingly.

    Whether these discounts apply, and how large they are, is frequently the difference between two expert reports that are hundreds of thousands of dollars apart.

    Why this is the case, not a footnote

    Valuing a business in a divorce is genuinely complex — but it is not optional. If the number is wrong, the property division is wrong, and no amount of good lawyering elsewhere fixes it.

    This is exactly the kind of case where a background in the numbers matters. The valuation isn’t a report to hand off and accept — it’s a document to read, challenge, and put in front of a court. If your divorce involves a closely held business, the value of that business is not a detail. It’s the case.