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Putting a price on business during a divorce

Entrepreneurs are under a massive amount of stress. Between managing employees, balancing accounts and providing services, business owners have to maintain everything to keep their company from sinking under the competition.

It’s even more stressful under the weight of a pending divorce.

It is essential to understand the possibility of putting a value on your business in a divorce from your spouse and the expectations surrounding ownership and property division in Colorado.

Does Splitting up the Family Mean Splitting up the Family Business

During a divorce, Colorado judges examine assets to determine if they are marital property. Most couples assume that houses, cars and even retirement accounts fall into the marital estate. However, it’s possible to have a marital value attached to your family business if it is classified as marital property.

It’s critical to note that not all businesses are marital property. In Colorado, a business will likely be marital if it was started during the marriage. A business may also have a component of marital value even if it was started before the marriage if it has grown in value during the marriage or if you used shared funds or shared resources, to fund or develop the company.

Valuing small businesses

Before a fair treatment of the business can be considered its value must be determined. The judge examines several factors, including:

  • The market value of similar businesses
  • Its financial history
  • Competition
  • The business’ longevity
  • The type of good or service provided
  • Annual earnings

Then, the judge looks at the financial and non-financial roles of each spouse, not just in in the business but in the overall marriage. Keeping a business intact as an on-going source of income will often be a preferred result. As well, expecting divorcing spouses to share on going ownership or management of a business is often a recipe for disaster. However, it may be crucial to devise a plan to fairly compensate a spouse for the value of a business interest being retained by the other party.

You won’t know exactly how a judge might view such a situation unless a decision is issued after a trial and the result could vary from judge to judge.

Luckily, you can try to negotiate a fair settlement with your spouse instead. Such a resolution might allow them to receive other assets in exchange for the business or some future payments from the company while allowing you to maintain ownership. But you need the right advocate to ensure a negotiation goes smoothly.