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Is a Business Considered Marital Property in Colorado?

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You are a business owner getting divorced in Colorado. Is your business safe?

Getting divorced requires you to assess the assets owned by both or either spouse. Things you assumed were entirely yours are legally considered marital assets. The car that only you drive, the wardrobe that only you wear, and even your personal retirement accounts are subject to division in the divorce. So, if you own a business, it’s only natural to wonder if this, too, is a marital property to be split.

The answer is yes. A business is marital property, but addressing the division of assets when there is a business in the marriage is far more complex than any other type of asset. At Petrelli Previtera, we are here to help you pursue a fair and reasonable solution to your business owner divorce in Colorado.

A Business is Unique Marital Property

The most important thing to understand about business ownership in a divorce is that a business is a unique marital property. It is a thing of value that is typically created through mutual effort and investment. Let’s start with the five most important legal facts about your business when dividing marital property.

  1. A business is an asset and an income source
  2. The growth of a premarital business is marital property
  3. The court cannot force you to sell the business
  4. You can balance the value of the business in other assets
  5. The non-owner spouse is considered a contributor

A business is considered marital property, and the growth of a business that existed before the marriage is marital property. This is because the contributions in time and energy of the non-owner spouse is considered. However, the court cannot force you to sell the business and you are allowed to give your spouse equal value in non-business property to take it whole-cloth. If this is impossible, you may agree to pay the value of the business over time after the divorce.

What to Avoid

There can be a great many misunderstandings about how to approach splitting a business in divorce when you’re not clear on the law. Always confer with a legal expert and avoid making rash decisions about how to split or sell the business. These three tips can help you get started on the right path.

  • Do not wait to learn about your rights. Learn as much as you can before making any decisions
  • Do not drain shared accounts. Separating your funds will make it harder to agree later
  • Do not rush into a sale. Act calmly and thoughtfully, with professional guidance

Be sure to approach the situation carefully and thoughtfully, with professional legal support. It’s important to properly handle the division of marital property in order to avoid any potential complications or disputes in the future. Remember that both spouses have a right to fair treatment when it comes to dividing assets, including a business.

How to “Split” Business Ownership in a Divorce

Let’s say you own a business. Maybe you started the business during the marriage. Maybe you and your spouse jointly own the business. Or perhaps your small business has grown significantly since your marriage. In order to address this unique marital property, a few important steps are required.

Step 1: Assess the Value of the Business

The first and most important step is to have the financial value of the business assessed. There are several methods to assess the value of a business and you may want to average the results of more than one assessment.

The value assessment will determine the business’ “weight” in the divorce asset division.

“Buy Out” Your Spouse

Once you know the value of the business, you can offer to “buy out” your spouse, the same way you might claim the house from joint ownership. Match the value of the business in alternative marital assets such as the home, cars, antique furniture, and the contents of bank accounts so that their “half” of the business has been balanced while you take the business.

Severing Joint Ownership

If both spouses own the business, the court will favor the spouse who does the most work to run the business when severing joint ownership. However, you will still need to balance the business in asset value in order to take your spouse’s half of the business as a marital property.

Is It Better Just to Sell the Business?

If you feel that you could easily restart your business with a new brand or want a change in direction, you could just sell the business and split the proceeds, as spouses often do with  a jointly owned home. But the court cannot force you to sell the business and you can choose other options.

Arranging a Payment Plan

If you cannot reasonably balance the value of the business in other marital property, you can arrange a payment plan to more slowly pay your spouse ethe value of their half of the business over time.

Why Your Spouse Gets a Part of Your Business

If you started the business on your own, before or after the marriage, why should your spouse get a part of it?

The court considers contributions such as time and investment of marital funds into a business even if only one spouse founds and runs the business itself. Consider how many times your spouse has taken over chores, prepared meals, or dedicated their time to helping you personally while you went through the roller coaster of founding a startup. No matter your unique circumstances, the court deems that it is likely your spouse was on that roller coaster with you.

If the business grew, their influence may have played a role. The other spouse in a family business is often overlooked, and the law is looking out for those people who truly gave a big portion of their lives to their partner’s business.

Prenuptials and Postnuptials

In some cases, couples will sign a prenuptial regarding an existing business or a postnuptial when one spouse founds their own business. These agreements can mark a business as non-marital property. While the court might overrule a prenup or postnup in light of evidence, such as significant spousal contribution, these documents are more likely to help protect a business that only one spouse works for and cares about.

For example, if you start a soap making business in which you mix, mold, list, package, and ship homemade soaps and your spouse plays no role at all, you might ask them to sign a postnup agreeing not to see your business as marital property.

However, if you found a small restaurant and your spouse regularly fills in when staff is short, the court will likely grant them 50% of growth value even if the restaurant existed before the marriage and a prenuptial was signed.

Legal Advice for Business Owners

Acquiring legal advice as a business owner from a family lawyer can be instrumental in safeguarding your business assets during a divorce. In the face of divorce, a family lawyer could recommend several strategies to protect the business.

Establishing a fair salary for the working spouse helps prevent claims of marital estate deprivation.

One common piece of advice, which may apply depengin on your sititaion would be to establish a fair salary for the working spouse. This prevents any claims that the marital estate was deprived of funds due to the working spouse’s low-income.

Avoid involving your spouse in the business to reduce their claim to a share of the business value.

Another recommendation could be to avoid involving your spouse in the business. This can help you demonstrate that your spouse did not contribute to the growth and success of the business, thereby potentially reducing their claim to a share of the business value.

Selling a portion of the business to a third party creates an independent market value.

A family lawyer could also advise you to sell a portion of the business to a third party, such as an Employee Stock Ownership Plan (ESOP). This can create a market value for the business that is determined by parties outside of the marriage.

A buy-sell agreement ensures control over the business by stipulating the sale of shares at a predefined price.

Lastly, a family lawyer might recommend the use of a buy-sell agreement. This agreement stipulates that the shares of a divorcing spouse must be sold to the company or remaining shareholders at a predefined price, hence helping to retain control over the business.

Ultimately, securing early legal advice can impact the outcome of your case and protect business assets, and ensure owners maintain control in the event of a divorce.

Navigating Business Owner Divorce in Colorado

If you are a business owner getting divorced in Colorado, Petrelli Previtera can help. Contact us today to begin strategizing the best way to un-entangle your business from your marriage depending on your unique situation.

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