You launched your business, got married, and checked every box on your five-year plan—until life took an unexpected turn. Whether you were served divorce papers or initiated them, the fallout can hit more than just your personal life—it can shake your business too. Like any venture, life has highs and lows. So, what happens to your business in a divorce—and how do you protect it?
Colorado is an “equitable division” state, which means that Courts will consider the business- and its value- like any piece of property that will be needed to be divided up in the divorce process. If the parties cannot come to an agreement, the Courts will generally value property and assign property to each spouse.
Is my business considered marital property?
If the business was acquired during the marriage, Colorado laws and judiciary officers consider the business to be marital property. If the business was acquired before the marriage, but there was significant growth during the marriage, this could be considered as part of marital property as this article explores further below.
What are the options in how to handle a business during the divorce process?
If the Court considers that the business (or a portion of it) is marital property parties have several options in how to handle the business;
- The parties can either sell the business;
- One party can buy the other person out;
- The parties can close or wind down the business or;
- The Court will force the sale of the business.
Don’t Rush the Sale of the Business!
Once divorce proceedings are initiated, both parties are subject to certain legal restrictions under Colorado Revised Statutes (C.R.S.) § 14-10-107. These restrictions specifically prohibit either party from liquidating or transferring marital assets during the divorce. Violating these provisions may result in court-imposed penalties, including fines or jail time.
Accordingly, it is strongly advised not to sell the business without first obtaining either (1) a written agreement between both spouses or (2) guidance from a qualified attorney. Proceeding without proper legal counsel could result in legal consequences or negatively affect the outcome of the divorce proceedings.
Until a binding and enforceable agreement is reached, neither party should sell the business or engage in any major financial transactions that could significantly affect its value. Additionally, it is important to review any existing prenuptial or postnuptial agreements to ensure they do not contain provisions related to the sale, ownership, or voting rights of the business. It is also important to review any business documents which may also speak to the sale and ownership of a business, in the event the parties do need to wind down the business.
How is the business valued in Colorado?
Depending on the structure of the business and the nature of the ownership interests, it is generally advisable for the parties to retain a Certified Public Accountant (CPA) with expertise in business valuations. A comprehensive business valuation goes beyond identifying the company’s assets and liabilities—it also examines the organizational structure, industry context, and historical financial performance, including revenue, profit, and income trends.
When appropriate, the valuation may also assess the business’s “goodwill,” which refers to the intangible value the company has accrued over time. This can include elements such as customer loyalty, brand recognition, reputation, and intellectual property.
What, in the business, is subject to division in the divorce process?
Once the business has been properly valued, the parties must address the division of marital property, which may include the business interest. In some cases, one spouse may be awarded other marital assets of equivalent value in lieu of receiving a share of the business.
It is important to consider both the structure and nature of the business when determining how it should be divided. In some situations, retaining an interest in the business may not be practical—particularly if the business is unprofitable, operates in a highly specialized niche, or if one spouse had little to no involvement in its operations.
Courts may also consider a variety of factors in determining what portion of the business is subject to division and whether the non-owner spouse is entitled to a share. Each case requires a fact-specific analysis to reach a fair and equitable resolution. It does not matter if one party was not listed as an owner in the business paperwork, as the non-owner spouse still might have the ability to claim a share of the business.
Colorado courts will evaluate whether either spouse made direct or indirect financial contributions to the business during the marriage. Common examples include using income, savings, or retirement funds (such as 401(k)s) to invest in or expand the business, or incurring marital debt—such as loans—used for business purposes.
When asserting a claim based on financial contribution, proper documentation is essential. Clear records demonstrating the source, amount, and purpose of the funds can significantly strengthen the argument before the court.
Courts may also consider non-financial contributions made by either spouse to the business. These contributions can include performing administrative or bookkeeping duties, providing unpaid labor, assisting with operations, or managing household and childcare responsibilities to enable the other spouse to dedicate time and attention to the business. Such contributions, while not monetary, can significantly impact the growth and success of the business and are therefore relevant in the division of marital assets.
Finally, courts may consider whether marital assets were used during the marriage to fund, operate, or expand the business. When marital property is invested into a business that would otherwise be considered separate property, the business may be reclassified as marital or partially marital in nature.
In cases where there is a claim of commingling—meaning marital and separate assets have been combined—parties may need to retain a forensic accountant. This professional can trace financial transactions and help distinguish between marital and separate property, which is critical in determining how the business should be characterized and divided.
Selling the business and ripple effects
Every business is unique, and every situation is different. If the business is an income producing asset, it may make sense to not sell the business. Selling or liquidating the business may impact the earning potential of the involved spouse. Parties may also want to consider if the business contract has a non-compete clause. Income is heavily considered when the parties are reviewing and calculating child support and spousal maintenance.
In conclusion, valuing a business, negotiating a buyout, selling a business interest, or continuing to operate the business during a divorce can have significant ripple effects on the broader division of the marital estate. These matters are often complex, nuanced, and burdensome—particularly without the proper guidance and information.
For this reason, it is essential to retain experienced legal counsel who can help you navigate these challenges and protect your financial future. At Griffiths Law PC, we offer the knowledge, resources, and strategic insight needed to guide you through this process and toward the most favorable outcome.
Bailey D. Nelson is a Senior Associate at Griffiths Law. Her practice is focused exclusively on family law related matters, including petition for dissolution of marriage, allocation of parental rights, post-decree disputes, high asset-high conflict divorces, child support and military retirement.