Divorce can be emotionally taxing, and splitting every asset with your soon-to-be ex isn’t easy. There’s an additional layer of complexity when one or both of you own a business. You must navigate the legal aspects of divorce and address the division of assets and the potential financial impact on your business. Learn about the relationship between divorce and business ownership, plus the division of business assets.
A Business Is a Marital Property
Various purchases may become marital property, such as your house, vehicles, and bank accounts when you get married in Colorado. Judges strive to divide all assets equally during a divorce proceeding. However, they cannot guarantee a 50/50 property distribution; Colorado judges strive for the most equitable result for the circumstance.
Courts consider the property shared if a partner starts or acquires a company during the marriage. In other words, both spouses have an equal claim to the business. Judges only review the increase in value during the marriage if you owned the business before the marriage. Judges consider the increase in the value of marital property.
What About Sole-Owned Business?
Sometimes, only one partner owns the company. In this instance, they must prove they used separate funds to grow it. You must trace the money as evidence to back your claims. However, judges still consider increasing business value community (marital) property.
The Importance of Prenups
Judges will review crucial documents, such as a prenup or postnup if you specify business ownership and what percentage of value goes to each partner.
Options for Dividing a Business
You have a few options for dividing the business’s assets when it comes to divorce and business ownership. As with all investments, it’s always best to communicate with your soon-to-be ex or a mediator so you two can determine the best course of action. Below, we’ve listed the three options you’ll have when the business is a shared property.
Buyout Your Ex
One partner could buy out the other’s share in the business. This option allows one partner to retain business control while providing the other individual fair compensation. Keep in mind that both parties must agree to this and buying out a business partner means giving them their equal share.
Sell the Business
Both partners could choose to sell the business and split the profits equally. This option might be suitable if neither party wants to continue running the business after the divorce. Likewise, selling the company may be the best route if one of you cannot afford to buy out the other partner.
The partners could choose to remain co-owners of the business. This option requires a high level of cooperation and mutual respect; you must communicate regularly. It may not be the ideal option if the divorce proceedings were contentious.
An Important Note
Every situation is unique. The best course of action depends on the specifics of your case, including the nature of the business, its value, and the dynamics between the parties involved.
Crucial Factors in Dividing a Business
Divorce proceedings involving business ownership can be intricate and complicated. One of the most challenging aspects is determining how to divide the business assets fairly. Judges evaluate specific areas, such as the following, to keep things fair:
- Start date of business
- Existing liabilities
- Value of the business
- Individual contributions to the business
In the sections below, we go into more detail regarding these factors to help you prepare for the proceedings.
Start Date of the Business
The start date of the business plays a crucial role in determining its division. The Court will typically consider a business marital property and subject it to equitable distribution if ownership of the company occurs during the marriage.However, only the increase in the business’s value during the union is subject to division if one spouse owned the business before the marriage.
Existing liabilities of the business are also a significant factor in the division process. These may include debts, mortgages, or any other financial obligations tied to the company. Just as the Court divides assets in a divorce, they also divide liabilities. Therefore, depending on the case’s specifics, both spouses could be responsible for these financial obligations.
Value of the Business
Determining the value of the business is a critical aspect of the division process. Courts often use Certified Public Accountants (CPAs) to thoroughly evaluate the company. These experts usually assessall business assets, such as equipment, buildings, and vehicles.
These professionals also consider the business’s growth, reputation, history of earnings, and projected earnings. This comprehensive evaluation ensures an accurate assessment of the business’s worth, preventing either partner from downplaying or exaggerating its value.
Contribution to the Business
Courts will also review how much money each spouse invested in the business and what they contributed to its growth. Business contributions can include financial investments and non-monetary assistance such as time, effort, and skills.
Reasons To Work With an Attorney
Understanding how Colorado law views businesses in divorce proceedings helps you prepare and make informed decisions about your future. An assets division attorney has in-depth knowledge of the state laws and regulations and can use their knowledge and experience to help advocate for you in court.
They’re Experts on Colorado’s Laws
Colorado laws regarding the division of business assets in a divorce are complex. An experienced attorney can provide professional guidance, helping you understand the process, your rights, and the implications of various decisions.
They Help Protect Your Future
Divorce has long-term implications for your personal and professional life. Hiring an attorney is not just about navigating the present; it’s about safeguarding your future.
Moreover, an attorney will advocate for your interests, present your case effectively, and challenge any unfair claims made by the other party. The best lawyers strive to help each of their clients meet their goals.
Contact Jones Law Firm, PC
Having an experienced family law attorney at your side can be invaluable in these situations. At Jones Law Firm, PC, we have spent over 20 years focusing on family law in Denver, Colorado. Our team provides a hands-on approach, making your best interest our priority. We can guide you through the process, protecting your rights and interests.