Is it Possible to Keep a Small Business Safe During a Divorce?

Is it Possible to Keep a Small Business Safe During a Divorce?

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Business owners have unique issues to consider when ending a marriage. For many Colorado small business owners, a business is the most valuable asset that exists in the marriage.

That also can make it the most vulnerable when it comes time to divide property in a divorce. The outlook for an individual business depends on a variety of factors.

If a prenuptial agreement exists that explains what should be done with a business in case of a divorce, this will be a key document in determining the overall outcome. However, the existence of such an agreement does not necessarily mean it will protect the business.

The document needs to be considered legally valid, which means it passes varies tests, and those tests depend on the date it was entered into. Couples with a prenuptial agreement in place should discuss the applicable laws and standards regarding their prenuptial agreement with a lawyer before filing for divorce, in order to better understand what may or may not be enforceable. Even “airtight” prenuptial agreements can have provisions that are set aside, such as maintenance and attorney fee provisions, if the court finds that enforcing them would be “unconscionable” to one spouse (e.g. very unfair).

It’s important to understand whether the business is considered “marital property” or “separate property,” or both, and to what extent. This question will be a key determining factor in whether, or to what extent, the business (or value of the business) will be handled in the asset division of the division. Additionally, be prepared for there to be a request for the business to be valued, usually by an independent valuation expert (such as a specially trained/certified CPA, or possibly by a commercial real estate appraiser, or both.) The value of the business will obviously be necessary if the business is not going to be sold and only one party will be keeping the business.

Business valuations are difficult and not usually something that can be “ball parked” or estimated. And the methods of valuation can be confusing to someone who has not been involved with the types of valuation methods commonly used in the divorce arena. Valuing the business often involves extensive discovery (production of financials and information,) and it might involve discounting (e.g. discounts for the lack of control or the lack of marketability, or both.) Before going down the road of divorce, taking the time to consult with an attorney and possibly even a valuation expert that is recommended by the attorney, will do you a world of good. If for no other reason than to have a much better understanding of what’s ahead if divorce is going to be filed, either by you or your spouse. Having an opportunity to begin gathering the relevant information, and otherwise getting these affairs in order prior to filing the divorce, will also give a party a head start in the process and it could ultimately save you a lot in legal and expert fees if you do so.

If your business was formed prior to your marriage, it may be considered both separate property and marital property. And in this case, valuations will need to be done for both dates, the date of marriage and the date of divorce. The value as of the date of marriage (i.e., the “separate property” portion) will belong solely to you, while the appreciated value (i.e., the “marital property” portion) will be included with the other marital assets and liabilities, and subject to “equitable division.” In Colorado, “equitable distribution or division does not necessarily mean “equal.” The court must consider several factors in the division of assets, including both parties’ contributions to the marriage (and contributing a business that was initially separate property, is a point you will certainly want to discuss with a Colorado attorney that specializes in divorces involving businesses, and who has a great deal of experience, as every case is unique and an experienced attorney will be much more able to provide you with guidance as to what may or may not happen with regard to the marital property portion of the business.

Just because a lawyer has a fancy website with lots of information, does not mean they have experience. These days, high school students can made attractive websites and anyone can google enough information to fill up a website, be careful to vet the lawyer you are considering, by ensure that he or she really does have an extensive amount of experience. Even if you do not want to pay the higher hourly rates, often such experienced lawyers will have lower hourly rate lawyer that work with them – this is an opportunity to have the best of both worlds, a lower rate lawyer doing a lot of the work, and a highly experienced lawyer at a higher rate who can oversee the matter, and or step in when needed, or simply to just be there as a safety net to the lower rate lawyer.