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Small Business Valuation in Colorado


Summary:  A small business should be treated the same as any other marital asset. The marital value of a small business depends on several factors. Hire an evaluation expert if you cannot agree on the value for division of marital property purposes.


Small Business Valuation for Divorce

Often at least one of the parties in a divorce operates a small business. If the business is a marital asset, it must be valued in order to be included in the equitable division of property.

Although there are many rules of thumb when a small business is sold, for divorce purposes the value of a small business is the value to the owner. This is generally not the same as a sale to an unrelated third party buyer. In other words, a divorce valuation may be different.

Many small businesses do not make any money. Instead they are tax write-offs or hobbies. If they are not making any money, then they generally have no value for divorce purposes.

If the business is making a little money (such as an hourly rate of income at about $10/hour) and has no employees, it is generally worth very little because if the owner/operator no longer works in the business, the business revenue will likely go to $0. This business may be worth only whatever cash and other assets it has. Particularly if it is a home-based business.

If the business is making a fair amount of money, such as $100,000 or more per year and has a couple of employees and rents commercial office space, then it is worth perhaps about what it makes each year.

The value of a small business for divorce purposes depends on several key factors. Such as:

1. Annual earnings;

2. The amount that annual earnings exceeds a reasonable wage for the operator (known as goodwill);

3. The type of product or service provided;

4. The future trend for that product or service (obsolescence);

5. The length of time in business and stability;

6. Financial history over the past 5 years;

7. Whether the business can continue in the absence of the owner/operator; and

8. The competition;

Generally, the business should continue to be owned by the spouse who is the owner/operator. That spouse should then pay the other spouse 50% of the value of the business at the time of the divorce. Or an offsetting amount of other marital assets should go to the other spouse. Similar to the equity in real estate or investments.

GIF The material on this web site is for informational purposes only. This law firm practices only in Colorado. An attorney-client relationship is established only when an agreement as to the scope of representation and fees has been signed and a retainer paid. Colorado law may consider these web site materials to be attorney advertising. GIF
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