For some families, their most valuable asset is a business they own. Trying to figure out a fair evaluation for a company and how it should be divided can be a significant undertaking – especially when you are already dealing with complex emotions and legal issues during the divorce process. An experienced divorce attorney can help explain objective ways to arrive at a fair valuation for a business for both of you.
How Colorado Divorce Courts Divide Businesses
The first step to ensuring an unbiased business valuation during a divorce is to understand how family courts treat business interests. Colorado law considers a business interest as marital property that is subject to equitable distribution if it was started during the marriage. If the business was owned before marriage, any increase in its value could be considered marital property. A judge can consider various aspects of the business in assessing its value, including:
- The date the business was founded
- The role each spouse played in increasing the business value
- The financial investments either spouse made into the business
- Any business liabilities
- The time each spouse put into building the business
- Whether the business is a significant income source for either spouse
Options for Valuing a Business
There are various ways you can value a business. What is fair will depend on what you and your spouse can agree on and receiving an unbiased evaluation. Options can include:
Valuing the Business Yourself
You and your spouse could decide you can reach an agreement about the business’ value. Common methods of valuing companies include:
- Income-based approach – This valuation method focuses on the economic benefit the business produces, so the value is based on its ability to generate profits in the future. You may be able to use historical financial data to project future earnings. Such earnings are reverted to net present value to determine the business’ current value. Professional services companies often use this evaluation method.
- Asset-based approach – This valuation method measures a company’s fair market value less its liabilities. This methodology may be used in businesses that make money by acquiring and then selling assets.
- Market-based approach – This valuation method determines what a similar business would sell for in the open market. Franchises often use this valuation method.
Hiring a Business Valuation Expert or Forensic Accountant
It may be difficult for you and your spouse to agree on a value. In that case, you may consider hiring a joint business valuation expert or hiring your own experts who can use objective information to arrive at a value for your business, such as:
- Tangible assets
- Intellectual property
- How long the business has been in place
- The success of the business
- Historical earnings
- Future projected earnings
- Comparable market transaction data
- Goodwill
Contact Us Today for Help Evaluating Your Business
The value of your business can have a lasting effect on your financial situation. If you’ve spent years building the value of the business or supporting it, these contributions should be acknowledged during the divorce. An experienced divorce lawyer from Stahly Mehrtens Miner LLC can help. We are experienced in valuing various assets, including business interests. Call us today at (303) 797-2900 for a confidential consultation.