Like many states, Colorado is a state that compels divorcing spouses to divide and distribute their marital property in a way that’s fair and equitable if not precisely 50/50. Marital property in Colorado is any asset, debt, or liability acquired by either spouse during the marriage regardless of whose name is on the account. When one spouse owns a business, divorce and the division of property can be an intimidating process. Many divorcing spouses worry that their spouse is entitled to 50% of their business, even if they were not a part of the business’s daily operation or a financial contributor. So, what are Colorado’s distribution of marital asset laws, and how does this impact one spouse’s business?
Separate vs. Marital Property in Colorado Divorces
Early in the divorce process, both spouses must make full financial disclosures and produce any documents requested by the other spouse and their attorney. This begins the process of determining what is separate property and what is marital property as well as the valuation of the property. In Colorado, separate property is:
Any property, asset, or debt belonging to one spouse before the marriage
Any asset inherited by one spouse during the marriage
Any asset or property gifted to one spouse during the marriage
On the other hand, marital property is any asset, property, or debt accumulated during the marriage. Dividing property into separate and marital assets isn’t always straightforward. It becomes complex due to commingling. Commingling assets occurs when one spouse grants the other access to a separate account or when one spouse invests money or time into making improvements or increasing the value of the other’s separate property.
Is My Business Separate Property in a Divorce?
Determining whether or not a spouse is entitled to a portion of the other spouse’s business requires both spouse’s attorneys to delve into the unique details of the business. For example, if one spouse owned the business before the marriage, it remains their separate property, but if the business increased in value during the marriage, the amount of the increase is considered marital property.
If one spouse owned the business before the marriage, but the other spouse invested a substantial amount of time and money into improving the business, they may be entitled to a greater portion of the business than they would if they had remained uninvolved in the venture. If both spouses began the business together during their marriage and contributed equally to the business, it is marital property and subject to equal division.
How Do We Divide a Business Between Spouses?
When a state’s marital property law requires the division of marital assets, it doesn’t mean that every asset is divided in half and each spouse gets half. That’s not a practical solution for most assets and properties, including a business. Instead, the attorneys and their associated financial experts perform valuations on assets, including on a spouse’s business. Then they determine each spouse’s rightful share under the state’s laws for fair distribution. The Fort Collins divorce attorneys from both sides may negotiate back and forth on the value of the business and determine an asset of equal value to exchange for the business.
For example, the spouse who owns the business may agree to exchange the marital home and vehicles for the business if together they equal the value of the business. If a spouse is entitled to a smaller portion, such as 50% of the business’s increase in value since the marriage, the spouse who owns the business may buy out the spouse’s share or exchange it for something of equal value.
Often, spouses with a business or complex assets and properties use a professional mediator as a neutral third party to help facilitate agreements and compromise over the equitable division of their marital property, including a business. If they are unable to reach an agreement, then the case goes to court and both sides present their arguments to the judge who decides for them and issues binding orders.