Businesses are assets that must be assessed during a Colorado divorce. Whether a business is a marital or separate asset depends on a few factors.
If a spouse established the business before marriage or inherited it prior to the marriage, and the business has not grown in value, the company will be considered separate property. However, if the business has increased in value, that increase in value is a marital property interest subject to consideration in the division of the marital property.
Of course, if the business was established after the marriage, it will be considered marital property unless a spouse can prove it was established entirely with separate assets.
Determining whether a business is marital property and how to divide and allocate it, along with the other marital assets, can be complicated.
If you are a business owner or the spouse of one and are considering divorce, contact Hogan Omidi, PC. Our specialized divorce attorneys in Denver will guide you through this process and craft a strategic solution to protect your priorities.
Businesses Are Challenging Assets to Value
Depending on the type of business, businesses may be valued based on market, asset, or income valuations.
Market-Based Valuation
Market-based valuation uses the market prices of comparable businesses recently sold or for sale in the same or similar area to help determine a business’s value.
Economic experts value a business using data such as sales, book values, and price-to-earnings, the same data that has influenced the value of similar businesses.
Asset-Based Valuation
Asset-based valuation is more straightforward. It uses the value of a business’s assets and subtracts its liabilities to determine its fair market value. Assets may include real estate, inventory, equipment, cash, stocks, intellectual property, accounts receivable, and more. This method is rarely used in divorce cases. Our high-asset divorce lawyers in Denver can explain why this valuation method is seldom relevant, at least if the business is an active operation.
Income-Based Valuation
This type of valuation assigns value according to a business’s ability to be profitable. Experts examine a company’s financial history to estimate its future earnings and then calculate its value.
When using the income-based valuation method, the capitalization of earnings and/or the discounted cash flow of the business are often considered.
Sometimes, valuation experts may combine these methods to value a business.
Businesses Can Be Challenging to Divide
If your business is considered marital property, how should it be divided? Consider taking these steps first:
- Know the actual value of your business. This usually means having a qualified expert do a valuation – not just relying on a party’s “gut feeling.”You cannot know what an equitable division of assets is if you don’t know the value of all your assets. Once you know its value, you can decide how to handle your interest in the business.
- Consider purchasing your spouse’s interest in the business. Rather than paying your spouse cash for their interest, you can sometimes allocate other marital property assets to create an equitable distribution.
- Consider your spouse purchasing your interest in the business. Do you want to continue to own the business? Were you actively involved in its operation? You may rather have other assets allocated to you in exchange for your interest in the business.
- Can you both continue owning the business? Are you both qualified to run or participate in the business? Do you trust your spouse to manage and operate the business fairly? Are either of you intimately tied to the brand or face of the company? What makes the most sense?
Should you sell the business to a third party and split the proceeds? If the parties are close to retirement age this may make sense. However, for younger people, concerns about future employment, the non-compete provisions that often go along with a business sale or other factors make this unrealistic.
You must consider what is in your best interest. It may not be easy to give up or take full ownership of an asset, but you must make rational decisions to set yourself up for a prosperous future.
Having an experienced, skillful business executive divorce attorney in Denver by your side can help ensure your interests are protected and you make the best choices for your long-term success.
Contact a Business Owner Divorce Attorney Today
If you or your spouse owns a business and are considering divorce, consult an excellent Colorado business owner and attorney.
The Denver property division attorneys at Hogan Omidi have decades of experience strategizing the best solutions for their complex property division clients, and we want to help you with that, too.
Call us today at (303) 691-9600 or visit our contact page and schedule your consultation.