Business Valuation in a Divorce
Complex Colorado Marital Property Division
Colorado divorce proceedings come in all shapes and sizes. In some cases, the need arises for the division of a business or business interest, whether a small mom-and-pop operation, a dental practice, or a landscaping company with 50 employees and significant equipment. Unlike some marital assets, which can be valued relatively quickly, such as a 401k or a car, the division of a business interest will generally require the insight and opinion of an expert to determine the value of the business.
Whether you are a business owner who is getting divorced, or the soon to be ex-spouse of a business owner, the attorneys at Plog & Stein, P.C. can help you obtain a property valuation of the marital business interests in your divorce. We do this through the use of business valuation experts, who are generally accountants with specific training in valuing a business concern. In all cases, we look for experts known to us and well regarded in the family law community. A seasoned expert must know not only how to properly value the marital portion of a business, but also the importance of testifying in court should your case proceed to trial.
In addition to assisting you in arriving at the value of that business, the Denver divorce lawyers at our firm are there to advocate for you towards a fair division of the property in question. As with the division of other marital assets, either one party will have to compensate the other for their share of the business or the business will have to be sold, or liquidated, with the net proceeds being split. Understanding your rights and options when dealing with a marital business in a divorce can be invaluable in structuring your financial future.
How Is a Business Valued in a Divorce?
If you or your spouse own a business, or if you both own it jointly, a court will need to determine the best method of valuing the business so that it can be equitably divided (the legal standard in Colorado for dividing marital property). A prenuptial or postnuptial agreement may specify how the business is to be split up if a marriage ends. But if you do not have a written agreement, dividing the enterprise can be complex and challenging. People who owned a business before getting married may be surprised to learn that any increase in its value after the date of marriage is likely to be considered marital property. In those instances, the expert employed will need to assess both the value at the time of marriage and the current value.
The court may look at some the following:
- Whether both spouses were putting equal effort into the business
- How much value the business had to each spouse
- Which spouse is best equipped to keep the business going, in cases of joint ownership and operation
A business that makes very little money and does not have employees may only be worth its possessions: cash and other assets like office furniture and computers. However, if the business is making regular income each year and has even a few employees, it may be worth significantly more. It may be important in either case to retain an expert on business valuation.
What Is the Book Value of a Business?
Courts might look at the “book value” of the business. This subtracts a business’ liabilities from the value of its assets, which results in the business’ net equity. However, dealing with the assets and liabilities will generally only be part of valuing a business. Some businesses may have little or no assets, yet still have a cognizable, divisible value.
Other factors that may be used to assess value are:
- Annual earnings
- Whether the business can continue without the current owner
- The type of service provided or the product sold
- The likely future trend in demand for the business’ product or service
- The business’ longevity
- Its financial history
- Goodwill (which is the amount by which the annual earnings are more than the business operator’s reasonable wage)
A different approach is the earnings or market approach, which looks at the earning capacity or market value of the business as assessed by what an outside buyer would pay for the business. This method will also take into account whether the business is likely to make more money in the future. After a divorce, a business usually will continue to be owned by a spouse who is an owner-operator of the business, and the spouse will either pay the other spouse a portion of the marital value or permit the other spouse to take an offsetting amount of other marital property.
Value Your Marital Business with Help from our Experienced Lawyers!
Tensions can run high when marital property division is debated. When it comes to the complex process of valuing and dividing a business, it’s critical to retain an attorney with experience working with business valuators within in the context of divorce. Our firm’s legal team has years of collective experience helping clients value and fight for their business interests. The divorce attorneys at our firm recognize that a business is generally going to be not only an asset but an ongoing, important source of income for your post-divorce future.
Ready to proceed with your Colorado divorce? Reach out to our firm for help today.