As divorce attorneys in Denver, we deal with various issues in any case. This can include issues related to children, property, financial support, and more. Not all cases are the same. One of the significant issues that can arise in a divorce is the division of property. In most cases, the property to be divided consists of a home, retirement and bank accounts, vehicles, investment accounts, or the furniture and pots and pans. However, there are families or parties to a divorce case who own businesses or business interests. As part of our divorce practice, experienced family law attorneys at Plog & Stein assist with the valuation and division of business assets as well.
Colorado business interests come in all shapes and sizes. A person may own a large business, such as a chain of restaurants or a car dealership. A person may own a small business, such as a one person accounting firm or a mom-and-pop laundry mat. A person might also own a fraction or portion of a business, without owning the whole entity outright. In a divorce setting, a business, or interest in a business, is generally considered property. As property, the same principles for dividing other assets apply. Property acquired during the marriage, absent a limited exception, is marital. Increases in value during the marriage to property acquired prior to marriage are considered marital in nature. Titling on property determined to be marital does not matter and said property can be divided by the court regardless of whose name it is in.
Prior to arriving at the actual division of a marital business asset, the parties must determine the value of a business. Contrary to popular belief, the value of any business is more that just looking at the assets/property and debt to arrive at a value from a balance sheet approach. Though this can be one facet of a business valuation, there is much more to the equation generally accepted by attorneys and courts in a Colorado divorce case. Beyond assessing assets and liabilities, a business valuation will entail an assessment of current and historical revenues and profits. This analysis also ties into the term “good will,” which can be quantified into an actual dollar figure. We have seen cases in which there may be a two person professional operation in which one party or the other will say, “There’s no value to the business; I am the business.” Of course, this will be a statement made by a husband or wife who actually runs or owns the business. Conversely, the other party may find it meritorious to look into whether even a small business has value for asset division purposes. As part of the process, business valuators can also determine historical values, such as the value at the time of marriage or acquisition, as well as the current fair market value.
When the issue of a dividing a business arises in a divorce case, the first thing the attorneys will do is discuss whether a valuation is needed and whether they can agree upon the person, or expert, to do the valuation. Most business valuators utilitzed by Plog & Stein, and the vast majority of Colorado family law attorneys, are certified public accountants, CPA’s, with specific training in valuing a business. In most instances, they will require a minimum of $3000 to $5000 to start. For larger business concerns, the cost can be greater. In any case, the key it to find a valuator with a reputation in the judicial system for doing honest, thorough, and accurate work. You will also want someone accustomed to testifying in court and being able to defend and explain his or her ruling. In some instances, one side or the other will not agree with the initial valuation and may seek out his or her own valuator. Thus, there may be a proverbial battle of the experts at the final divorce hearing. One must keep in mind that the court has the ultimate say if the parties cannot agree upon a value or how to divide a business and that the court will have discretion to divide the business interest “equitably.”
Once the value of a business interest is determined, whether by agreement or by your divorce court judge, the next step in dealing with division of a business asset relates to how it will actually be divided or how the non-operating, non-owner party will receive the value of his or her share of the interest. In some instances, parties may elect to sell a business. As most businesses are income producing assets, parties will generally want to keep them and courts will generally recognize that to order sale will impact income flow for a family. Therefore, the first step will be to see if there are offsetting assets. For example, if a business is valued at $100,000 and there is a 401K plan also valued at $100,000, it would make sense for the party owning the business to keep the business and the other party to receive the 401K. Realistically, there may not be offsetting assets. As such, the party retaining the business interest may be required to pay out the other party’s share, over time, in monthly or yearly installments, with interest accruing. In some instances, there may be alienable stock which can be transferred from one party to the other. In smaller businesses or closely held companies, stock, if any, will generally be restricted or come with parameters indicating it cannot be transferred to anyone but another shareholder in the company. One must consider that courts will generally be bound by shareholder agreements or stock restrictions in cases of partnerships or multi-person family run entities. In most cases, the divorce process will only affect the divorcing business partner’s share or interest, not that of the other partners not party to a divorce.
When faced with a divorce and the existence of a business, or business interest, the family law attorneys at Plog & Stein, P.C. can help you determine whether a business valuation is in your best interest, whom to use, and how to either negotiate or litigate division of the business asset. Property in a divorce case comes in many forms. As such, you should be ready to protect your interests and rights when the time comes to look at asset allocation in that Denver divorce case.