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Is a business considered marital or separate property?

| Aug 20, 2015 | Property Division

Business owners tend to pour their heart and soul into their work, and for many Colorado entrepreneurs, their business becomes an intrinsic part of them. However, without carefully laid plans prior to marriage or the start of the business, some owners could be at risk for losing control of their business during a divorce. Whether a business is deemed as marital or separate property plays an enormous role in what actually happens to it when its owner gets divorced.

Property division is the part of a divorce where assets are determined to either be marital or separate — belonging to either the husband or the wife — and then separated accordingly. While this is often straightforward enough, the process can be complicated by a number of things, including ownership of a business or lack of a prenuptial agreement. Depending on when a business was started and who actually ran it, there can be a variety of outcomes.

For instance, a business started prior to the marriage might be considered separate property, but a spouse could be entitled to a portion of the profits earned during the course of the marriage. However, if a business is established after the couple says “I do,” it is almost always labeled as marital property. This holds true even if only one party’s name is associated with the business. However if both parties’ names were associated with the business, then the options are somewhat limited; they may include possibly buying one party out of their share or selling the business off to a third party.

No matter the situation, it is often advisable to have a business appraised prior to determining if it is separate or marital property. Understanding the value — including assets and liabilities — of a business not only allows both parties to make informed decisions, but it also ensures that the outcome was based in knowledge and reason. Although divorce can appear worrisome for Colorado business owners, understanding the possible outcomes before heading into the process can help ease the process.  

Source: Fox Business, “Could You Lose Your Business in a Divorce?”, Rebecca Zung, Aug. 7, 2015