My Wife Started a Business During the Marriage. Am I Entitled to Anything?
Potentially, yes. In Colorado divorce cases, a business will generally be viewed like any other piece of marital property. Pursuant to Colorado statute, the court has the authority, and duty, to divide marital property “equitably,” meaning the court is charged with using its discretion to divide property as it deems to be fair.
When looking at marital property to be divided, the pivotal factor which needs to be determined is the present value of that property. From there, Colorado divorce attorneys, and courts, will attempt to determine how to appropriately divide up the marital property, including any business interests.
In most marriages, there is not just one piece of property. Rather, there are often several items, perhaps a house, vehicles, retirement accounts, and bank accounts. Each asset does not necessarily need to be actually divided. Rather, the court will generally look at the aggregate marital estate and figure out how to allocate assets fairly such that each party receives an appropriate share. Though “equitable” is the statutory standard, the reality family law lawyers see in the vast majority of cases is that marital property is divided on a 50/50 basis. This will generally entail a mixing and matching of assets between the parties, with one usually having to give the other some form of equalization payment to get to equal.
When one of those items of property is a business, there are various issues that can arise related to division and valuation. If the business is one owned prior to the marriage, or one gifted to one spouse during the marriage, the court can only look at the increase in value to the business during the marriage. It cannot require sale or liquidation of the business. If the business is truly marital in nature, the court could order sale, much as it could with real estate, or liquidation. Generally, these options are not pursued by either party, nor ordered, since beyond being a quantifiable property item, a business can also be a source of income for one or both or the parties.
Normally, one party is going to keep the actual business and the right to continue running it. If there is a battle over who will keep the business, the court is likely to look at who has made what efforts related to the business and who has the greater likelihood of continuing to run it or keep it afloat. Often, one party has nothing to do with the running of the business at all. With that in mind, the question becomes one of how to compensate the other for their fair share.
With the first step being valuation of the business interest, the parties will generally need to enlist the services of a business valuator, which will generally be a CPA with specific training regarding valuation. Sometimes, each side hires their own expert to value a business. Contrary to common notions, the value of a business is more than just assessing the held assets and liabilities to determine the equity in it. Rather, a standard business valuation also looks at the industry. More importantly, a valuation is going to consider revenues, profits, and income. A valuation is also going to look at “good will” and assign a monetary value to it. Business valuations can be lengthy and complex and there can be pitfalls for the expert tied into cooperation of the owner/managing spouse, as well as record keeping. Given the intricacies in a proper valuation, it’s quite common for the value of the business to be quite different from what a lay person might anticipate.
Once the value is arrived at, whether via agreement or by the judge, the next step is to determine how to go about dividing the marital property, meaning how the other spouse will be compensated for his or her share of the business’ value. In some instances, there will be other, offsetting assets such that that spouse can keep more of the other assets in lieu of receiving actual proceeds from the business. However, there aren’t always offsetting assets. In such an instance, the court might enter orders requiring the spouse retaining the business to pay off the other spouse over a reasonable amount of time, generally with a series of equal payments. The final option would be the court ordering the sale of the business.
Unlike most assets, a business will generally be an income producing asset. Income ties into additional divorce issues, such as alimony (“maintenance”) and child support. As such, keeping the business going can be important to the other spouse as relates to support. Sale or liquidation will certainly impact the support one might have received if the business had been kept intact.
Knowing how to deal with a business in a divorce, as well the impacts which could arise, including as tied to support, is extremely important. Whichever side of the equation you are on, it’s advisable to contact an experienced family law attorney to understand your rights and options tied into a business interest and divorce.
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