The business you own or have been building for years is a marital asset and may be lost or divided during your divorce. Business valuations may be needed when clients and their attorneys don’t know or disagree as to what your business is worth. Understand how businesses are valued during divorce in Colorado, and how to manage the costs and time spent valuing your business during your divorce.
A couple in Denver hire separate experts to value the same medical practice. After looking at the same information, the experts offer their clients values over a million dollars a part. The lawyers can’t agree on a date to determine the value. The experts used different methods to value the business, spent over $30,000.00 and took over 6 months to leave the family in a place only worse than where they began, now needing updated values for the court to decide what the marital value should be.
Another family in Jefferson County agrees to a joint expert to value Husband’s interest in his company. Husband disagrees with the value determined and hires a separate expert to offer a rebuttal opinion. At trial the court found they were both wrong and determined a completely different value that left Husband with his business and Wife with everything else after a 20 year marriage.
Your Business May Be A Martial Asset
Family law in Colorado presumes that a business that began or grew during the marriage has a marital value that must be determined and considered when dividing the marital estate.
While the Court has discretion to determine current values at the time of divorce, the Court must also consider the contribution of each spouse to acquiring the asset.
C.R.S. 14-10-113 (1)(a) specifically reads:
(1) In a proceeding for dissolution of marriage or in a proceeding for legal separation or in a proceeding for disposition of property following the previous dissolution of marriage by a court which at the time of the prior dissolution of the marriage lacked personal jurisdiction over the absent spouse or lacked jurisdiction to dispose of the property, the court, subject to the provisions of subsection (7) of this section, shall set apart to each spouse his or her property and shall divide the marital property, without regard to marital misconduct, in such proportions as the court deems just after considering all relevant factors including:
- The contribution of each spouse to the acquisition of the marital property, including the contribution of a spouse as homemaker.
What are clients to do when the statute itself creates confusion? The Court has to determine a current value, but must also consider the contribution of each spouse to that value.
Doctor and wife separate soon after filing for divorce. They live separately, parent separately and have nothing to do with one another although still legally married and unable to negotiate settlement. Over a year later they still aren’t divorced. What date is fair and equitable to determine the business value?
Client with marijuana business wants his divorce final before the business is valued by new investors. Clients don’t live together and determined the parenting plan months before. Court can’t offer a court date for the permanent orders hearing until six months from now. What date should the court use? What’s legal? What fair and equitable? How are such concepts so different?!
How Should Your Business Be Valued?
Experts usually rely upon three common methods to determine a business value.
- Cost: The market value of underlying assets, the adjusted book value;
- Market: Compare the business with exchanges of comparable business; or
- Income: Estimate the value by considering the income on cash flow to the prospective buyer.
Here are links from 2 business appraisers to better understand how they do it.
Family Law professionals must find a better way. There are ways to help make the process of business valuations more time-efficient and cost-effective.
Before clients pay thousands for a business valuation, the parties should agree or the court should determine the following:
What is the date certain for determination of value?
Colorado law requires that we value assets as the date of the decree, or when the divorce is final. However, between the time needed for the expert report to be issued, a rebuttal report to be tendered, the time to then attempt to negotiate settlement and then be heard by the court if the parties still don’t agree, means by the time the parties actually get to court, the determined values may be outdated.
What method should the experts use to determine the business value?
Money and time will be saved if the parties would first talk to the experts about the specific business and what method is likely to be used. If the experts don’t initially agree on the method, then the Court should permit a brief hearing on this specific issue and make the determination before the parties spend thousands and waste months of their life waiting to possibly have more to fight about instead of resolve.
While no one is disputing the necessity of business valuations during divorce, we need to reign it in. By pre-determining a method to be used, a date certain for the valuation so experts are reviewing the same information, and hard deadlines for reports to be completed and the Court to hear the matter, clients will save time and money.