Often times, one of the assets of a divorce will be an interest in a business. This may be a single owner small business, a partnership interest, a membership interest in a limited liability company, or shares in a private company.
Business interests must be valued by a forensic accountant. The most accepted standard of value in Colorado for divorce valuations is the “value to the owner” standard. Therefore, the value of the company as stated in a buy-sell agreement is not necessarily the value for divorce purposes. Neither is the company’s own valuation of shares necessarily the same thing as “divorce value.” Determining a company’s EBITDA, while helpful, is not the final word in a company’s value.
Goodwill is an asset in Colorado, including professional goodwill. This means that professionals who own a business whose main asset is simply the income stream he or she generates, may still have a business with a value that is divided by the divorce court. While many view this as “double dipping,” current case law allows for it.
Oftentimes, the business owner spouse does not have enough property to offset his or her business value. In this case, the payout to the non-owner spouse will be in the form of a promissory note paid over time.