The business may have started at a kitchen table, in a spare bedroom or with a small loan and a big idea. Years later, it may employ people, generate substantial income and represent a significant part of a family’s finances. Then a divorce forces the owner to consider something that may never have been part of the business plan: What happens to the company when the marriage ends?
The answer may not depend solely on whose name appears on the ownership documents. Colorado courts consider several factors when dividing marital property. For business owners, three considerations can help put the company’s role in the divorce into perspective.
1. Start with when and how the business grew
A company does not always fit neatly into the categories of “mine” or “ours.”
If a spouse started the business before marriage, that history can matter. However, Colorado law treats the increase in value of separate property during the marriage as marital property. Property acquired during the marriage also generally falls under the marital-property rules, subject to certain exceptions.
That means a business owner may need to look at more than the company’s current ownership documents. Financial records, the business’s value at the time of marriage and its growth over the years may all become relevant.
2. Look beyond the number on a balance sheet
The next question often sounds simple: What is the business worth?
In practice, determining that value can require a closer look at the company’s income, assets, debts and other financial information. The spouses may also have different views about what makes the business valuable, particularly when one spouse works in the company.
Colorado law generally values marital property as of the date of the divorce decree or the earlier property-distribution hearing. A professional business valuation may help establish a reliable figure.
3. Think about what happens after the value is known
Finding the business’s value does not necessarily mean selling it.
One spouse might keep the company while the other receives other marital assets. In other situations, the spouses may need to consider whether continued shared ownership makes practical sense.
The right approach can depend on the company, the spouses’ finances and the role each spouse has played in the business.
Keep the business in the bigger picture
A business can be both a financial asset and the result of years of personal effort. Divorce may require an owner to look at it differently, but it does not have to mean abandoning the company’s future.
Understanding the business’s history, establishing its value and considering workable ways to divide marital property can help an owner approach the next chapter with a clearer plan. A Colorado family law attorney can explain how the law may apply to the specific business and provide personalized legal guidance.