Partnership breakups are complex processes. Regardless of whether the situation is adversarial or not, the steps involved in valuing and dividing assets and liabilities can give rise to significant concerns unless it is managed correctly and professionally. Below you’ll find the key points you need to know.

The first step is to identify all assets and liabilities of the business. This can include real estate, equipment and machinery, any inventory (which can include work in progress), and even furniture, fixtures, and office supplies. Beyond these tangible assets, you also need to include intangibles like intellectual property, brand value, goodwill, and any licensing agreements, supplier contracts, and customer contracts that exist. On the other side of the balance sheet, you need to list the partnership’s short and long-term liabilities and any potential liabilities that might present an issue in the future.

Once you’ve created a complete list, you need to determine the value of each of these items. For tangible assets, this may be interpreted in terms of their market value, which can be determined by analyzing comps, or you may want to use the book value based on the original cost minus accumulated depreciation. The other option for valuation is to agree to a professional appraisal, which is almost always the right answer when it comes to assessing real estate or special equipment.

Valuing intangible assets is a lot trickier, but can be accomplished using the amount of future income that the asset is expected to generate. You can also estimate the cost of recreating the asset or comparing the asset with other similar assets that may have been sold in the past, whether by your partnership or one in a similar industry.

When it comes to assessing liabilities, once you’ve made a list of all of them, you should determine how they should be settled, divided among the partners, or taken on by new partners. Remember that there is a priority of claims that place legal and financial obligations before all others.

It’s important when approaching this process that you turn to your partnership or operating agreements for guidance on any existing rules for how to manage them. It’s also important to remember that assets and liabilities are generally divided based on each partner’s share of ownership of the business unless other terms have been agreed upon. Finally, if there is disagreement, turn to negotiation or mediation to reach an answer that satisfies everybody. This is almost always a better answer than litigation.

If you need assistance with dissolving a partnership, our professionals can help. Contact us today to learn more about our professional services.