Evaluating the family business during a divorce

by | Nov 30, 2020 | Divorce, High Asset Divorce, Property Division

Business owners have to juggle several tasks at once between managing employees, balancing financial records and running the daily operations of a company. However, one additional task could be tackling their divorce.

Unfortunately, a nasty divorce could have severe implications on a family business between profits, ownership, and general management.

According to Colorado state laws, courts have to divide marital property based on equitable distribution, which means a division of assets in a fair manner. It doesn’t necessarily mean an equal portion.

If a business qualifies as marital property, the owner may receive significant ownership of the company, but the former spouse may argue for a small or equal share of the company under the right circumstances.

However, not all companies are considered marital property. It is only a shared asset if both spouses put value into the business. For example, if both partners worked or invested funds into the company, then the company is a marital asset.

Establishing the value of a business

Due to Colorado’s legal system, the court determines the value of the company and decides a fair portion for each person. The judge examines several factors, including its market value, financial history, competition, the business’ longevity, the type of good or service provided and annual earnings.

After a general analysis, the court investigates the role of each partner and an appropriate percentage of the company shares for the respecting spouses. The decision truly varies from judge to judge, so there is no exact prediction for the outcome.

Your best strategy is to establish why the business is not a marital property or why you need to maintain a majority holding over the company. It’s the only way to continue a trajectory of success for your company.