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Nuts and bolts issues in business divorces

On Behalf of | Apr 17, 2023 | Family Law News

Broadly speaking, Colorado divorces work the same way no matter what property the couple owns.

In other words, the laws about dividing property are mostly the same whether a Denver area couple owns a prosperous business or, rather, just owns a family home and a couple of cars.

On a practical level, though, dividing a business interest in a divorce can be much more complicated than dividing more common assets like a home or car.

  • Family-held businesses and other private enterprises will rarely have an easy-to-determine value.
  • Oftentimes, a business is a source of wealth and high income for a couple. Also, sometimes one or both spouses has emotional or other ties to the business.
  • Financial and other considerations can raise the stakes enough for separating spouses to be willing to spend the time and resources to argue about business division.
  • Income from a family-held business can be more difficult to determine since it is irregular. Also, a business owner may be receiving in-kind compensation, such as a company car which they can use also for personal purposes.
  • The spouses may have different levels of involvement in the business, which could make it impractical to sell the business or transfer some of the interest to the uninvolved spouse.

What are some common issues that can come up during a business divorce?

Every divorce involving a business is a little different.

However, there are some common issues that a business owner might run into during a divorce proceeding:

  • The value of the business might be at issue. In these situations, a financial expert may need to help determine the business’s value.
  • In some cases, there may be an issue as to whether some or all of the business interest really is marital property. For example, a person who receives an interest in their family’s business through a gift or inheritance may not have to share that interest.
  • On a related point, many family businesses require shareholders to have prenuptial agreements in place.
  • If the business owner draws more than a cash salary, it may take some additional effort to correctly determine how much income they are receiving from the business, especially if the income fluctuates.
  • There may be some questions about how actually to divide the business. Often, simply selling the business is either not possible or a last resort. The couple or the court will have to figure out a way to make sure each spouse gets their fair share.