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What happens to a business in a divorce?

When you are a business owner and divorce is looming, you may worry about what will happen with the business. Dividing marital property in Colorado is complex, but with the right attention to detail, it is possible to keep a business afloat through a major life change like divorce.

Understanding the differences

Business ownership may have existed before the marriage. Or it may be that the business was started after marriage. Spouses may have a partnership interest or not. Regardless of whether the spouse is a partner in the business or not, spousal contributions are an important and often overlooked factor, and this includes contribution of both financial support, effort and ideas.

Most business owners discuss their plans with the other spouse. Even if the business is owned before marriage, it’s common for the new spouse to provide valuable ideas and support. If the spouse can prove their contributions, it’s possible that the business will have some marital component and value.

Finding an equitable arrangement

Because business and marital property is so complex, it is vital to examine your total financial and property picture as you prepare for divorce. Colorado divides marital property in an “equitable” measurement, meaning the goal is for each side to receive a fair settlement which is usually as close to equal as possible.

Given personal and business interests, divorcing business owners/partners have many options, including:

  • The spouses trade assets: for example, one partner keeps the home or retirement account and another keeps the business.
  • An ex-partner becomes a silent partner, limiting their business role but remaining invested.
  • The ex-spouses remain full business partners.
  • An ex-partner sells his or her share to another investor.
  • One spouse purchases full ownership from his or her ex.

If the spouse is not a partner in the business, the determination of the marital value of the business becomes an important factor in asset division. It may be helpful to consult with professionals on whether to complete a business valuation. Hiring a neutral expert can help to keep costs down and minimize conflict.

Looking to the future

There are many variables depending on your personal situation and your ability to work cordially with an ex-spouse. The point in each option listed above is that equal value is given to both sides, not necessarily in a monetary transaction. Because equitable distribution looks at value over physical property, divorcing couples have flexibility to negotiate.

According to Colorado Biz magazine, approximately 46 percent of family business owners go through divorce. While business property may be difficult to categorize, the courts have experience with these situations. An experienced legal team can help you find a solution that meets both your business needs and your personal needs as you look for business stability amid a new relationship status.

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Littman Family Law

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