Dividing property in a divorce can be a challenge, especially if a spouse owns a business. You might wonder what the business could be worth and how you and your spouse will divide it. Understanding how the process generally works may help you feel more informed about your finances and the steps involved.
What counts as marital versus separate property?
In Colorado, you usually share marital property, while separate property typically stays with the original owner. If you started the business during the marriage, you usually count the full value. If you started it before the marriage, you typically count only the increase in value during the marriage.
In addition, your work or your spouse’s work, such as managing the home, handling paperwork or caring for children, can affect the marital share. Understanding which parts the court typically considers can help you see what counts toward the division.
How do courts determine the business’s worth?
In Colorado, experts usually value the business as close as possible to the date of the divorce or dissolution of marriage hearing or trial, rather than the date of separation. This way, you can get a clearer sense of the business’s value from your perspective or your spouse’s perspective.
How is the business typically evaluated?
A certified public accountant (CPA) or business expert often calculates the value, usually close to the date of the divorce trial rather than the date of separation. They might use one or a combination of these methods:
- Income approach: Estimates future earnings in today’s dollars, considering trends and profits.
- Market approach: Compares your business to similar businesses that were recently sold.
- Asset-based approach: Subtracts debts from total assets, which can be helpful for businesses with property or equipment.
Each approach can offer a different view and courts may consider them together when determining a fair estimate.
How is goodwill factored in?
Goodwill is the value a business may have beyond its assets, such as customer loyalty, reputation or brand recognition. Even small or personal service businesses could have goodwill. Courts in Colorado sometimes take this into account to provide a fuller picture of the business’s worth.
How can you divide the marital share?
After estimating the business’s value, the marital portion follows equitable distribution where assets are often divided fairly, though not necessarily equally. The court may consider factors such as the length of the marriage, both spouses’ contributions, current finances and which spouse is best positioned to run the business.
Business asset division might occur through a buyout, where the spouse keeping the business compensates the other or through selling the business and splitting the proceeds.
Handling business valuation with confidence
Figuring out a business’s worth in a divorce can be complex. Being prepared and thinking about both financial and personal contributions could make it easier to reach a division that feels fair to both spouses.