Dividing Professional Practices in a Colorado Divorce
Divorce is never easy, but when professional practices are involved, the process becomes even more complex. Examples of professional practices often tangled in divorce are medical clinics, accounting firms, therapy offices, and law firms. We’ve seen many divorce situations where one spouse is a doctor, accountant, therapist, lawyer, or dentist, and the other spouse wonders whether they’re entitled to a share of the practice.
If you, your spouse, or both of you own a professional practice, it’s crucial to understand how these are divided in a Colorado divorce. Goldman Law, LLC is here to guide you through this intricate process, ensuring your rights and interests are protected every step of the way.
Is a Business Considered an Asset in a Divorce?
Businesses or professional practices are generally considered assets during divorce proceedings in Colorado. However, their classification as marital or separate property depends on specific circumstances.
If one spouse started the business before marriage, and the other spouse is not a co-owner, Colorado divorce courts may deem the business a separate asset, not marital property. This means that the spouse who owned the business prior to the marriage may retain full ownership and control over it after the divorce.
However, if the business had an increase in value during the marriage, the growth may be considered marital property. In such cases, the appreciation or growth of the business during the marriage may be subject to equitable distribution under Title 14 of the Colorado Revised Statutes.
To determine whether a business is marital or separate property, and how it should be divided, the court will look at various factors including:
- The date of the business’s establishment
- The contributions of each spouse to the business’s growth and success
- The extent to which marital assets or efforts were involved in the business’s operations.
As you and your spouse discuss the professional practice, it’s crucial to have an experienced family law attorney on your side. A competent lawyer should evaluate the specific circumstances of your case and advocate for a fair and equitable division of business assets during a Colorado divorce.
Understanding Professional Practices as Marital Property
In Colorado, professional practices are often considered marital property and may therefore be subject to division during a divorce. This means that the value of the practice, including its goodwill, client base, and other assets, may be subject to equitable distribution between the spouses.
As mentioned above, even if only one spouse officially owns the practice or started it before marriage, it’s likely that the business has grown during the marriage. This growth is what makes the practice divisible upon divorce.
However, determining the value of a professional practice can be a complex task, as it’s not just about the cash value of the business. It also involves various factors such as the practice’s reputation, location, and the expertise of the professionals involved. Additionally, the value may fluctuate depending on the specific circumstances of the case.
Valuation Methods for Professional Practices
Colorado courts typically use one of three standard methods to assign values to businesses and other properties during divorce proceedings: asset-based valuations, income-based valuations, and market-based valuations. The chosen methodology depends on the nature and characteristics of the business in question.
Asset-Based Valuation
An asset-based business valuation calculates the value of the business by determining the fair market value of its assets, minus the company’s liabilities. The assets considered can be tangible (such as cash, real estate, inventory, and equipment) or intangible (like intellectual property and goodwill). This approach is commonly used for businesses that hold most of their value in assets, such as car dealerships or real estate holding companies.
Income-Based Valuation
The income-based valuation method assigns a value to the business based on its ability to generate profits, both currently and in the future. Valuation experts examine the financial history of the company to estimate future earnings, which are then used to calculate the current value of the business. Two sub-categories within this approach are:
- Capitalization of earnings: The appraiser calculates the company’s projected future profits based on its current earnings and expected future earnings.
- Discounted cash flow: The value is estimated based on anticipated future cash flows, discounted to present-day value.
This method is commonly used for businesses that derive their value primarily from revenue generation.
Market-Based Valuation
The market-based valuation, or market approach, uses public data for comparable business transactions to assign a value based on relative factors. Valuation experts consider market prices of similar businesses recently sold or currently on the market, using financial indicators like sales, price-to-earnings, and book values. This approach is suitable for businesses operating in industries with active market transactions.
Combination Valuation
In some cases, a combination of valuation methods may be used, depending on how the business operates. For example, a real estate holding company that earns via real estate assets may need a combination of asset-based approach and income-based valuation.
Factors Affecting the Division of Professional Practices
When dividing a professional practice in a Colorado divorce, the courts consider numerous factors to determine if and how the business should be split between the spouses. Some of the main considerations include:
Length of the Marriage
The longer the marriage, the more likely it is that the professional practice will be considered a marital asset subject to division.
Contributions to the Practice
If one spouse contributed significantly to the growth and success of the practice, either through direct involvement or financial support, this may impact the division.
Future Earning Potential
The court may consider the future earning potential of the practice and the spouse’s ability to continue generating income from it.
Start Date of the Practice
The court will take into account the date the business was established, particularly whether it was in operation before the marriage or if it began during the marriage. Businesses started before the marriage may be considered separate property, while those launched during the marriage are more likely to be deemed marital property subject to division.
Value
The current value of the business and its assets are crucial factors in determining how to divide the business. The court will also consider whether the company’s value increased during the marriage, as that appreciation may be considered marital property.
Liabilities
If the business is considered marital property, the court may distribute its liabilities to each spouse as part of the divorce settlement.
Spousal Involvement
The court will evaluate the level of involvement from each spouse in the business, both financially and in terms of time and effort invested. If both spouses dedicated resources and effort to building and growing the business, the court will consider these contributions when determining how to split the business during the divorce.
How Do You Split a Business in a Divorce?
The specific approach to dividing a business in a Colorado divorce can vary depending on the unique circumstances of each case. Options may include one spouse buying out the other’s interest, continued co-ownership with defined terms, or the sale of the business:
- Buyout: One party may buy out the other’s stake in the practice, either through a lump sum payment or structured payments over time.
- Continued co-ownership: The spouses may agree to continue co-owning and operating the practice, with specific terms and conditions outlined in a legal agreement.
- Sale of the practice: In some cases, the parties may decide to sell the practice and divide the proceeds.
Which method is best for dividing your practice upon divorce? To answer this, It’s essential to consult with an experienced family law attorney. Your attorney can provide case-specific legal advice and ensure your interests are protected during the division of the professional practice.
FAQ: Dividing Professional Practices in a Colorado Divorce
Can a professional practice be considered separate property in a Colorado divorce?
In some cases, a professional practice may be considered separate property and not subject to division in a Colorado divorce. This can occur if the practice was established before the marriage or acquired through inheritance or gift. However, if the practice was built or grew significantly during the marriage, it may still be considered marital property, even if it was initially separate property.
What happens if one spouse contributed significantly to the growth of the professional practice?
If one spouse contributed significantly to the growth and success of the professional practice, the court may consider these contributions when determining an equitable division of the practice. Note that “contributions” may be in the form of financial support or direct involvement.
Can spouses continue co-owning a professional practice after a divorce?
Yes, in some cases, spouses may agree to continue co-owning and operating the professional practice after a divorce. This arrangement would involve a legal agreement outlining the terms and conditions of the co-ownership, such as decision-making processes, profit-sharing, and potential exit strategies.
Protect Your Interests During Divorce with Goldman Law
It can be challenging to divide a professional practice in a Colorado divorce, and divorcing spouses often feel anxious about the share they’re entitled to. You can, however, safeguard your rights and interests with the help of an experienced divorce attorney.
At Goldman Law, LLC, our skilled attorneys have extensive experience in handling these intricate cases, and we are dedicated to helping you achieve a fair and equitable resolution. Contact us today at (303) 656-9529 to schedule a consultation and learn more about how we can assist you.
