The Methods of Business Valuation in a Colorado Divorce

Get the help you need!

Businesses May Be Divided in a Colorado Dissolution


The methods of business valuation in a Colorado divorce. Like other assets – stocks, bonds, cash or cash equivalents, real estate, etc. – a business entity may be classified as marital property and, as such property, may be subject to division under Colorado’s principle of equitable distribution. Businesses are among the most difficult types of assets to divide, and this difficulty is due to multiple reasons. One reason is simply because businesses tend to be much more challenging to assign a value. With other assets, such as real estate or investment funds, determining value is relatively straightforward; there is a stable market, and well-known principles for establishing value. With businesses, on the other hand, valuation is trickier. The market for selling a business may be thin, and different things go into a business’s total value – current assets, current liabilities, goodwill, inventory, client lists, projected business deals, market share, and so forth.

Not only are there many things which comprise a business’s value, there are different methods which are used to approximate valuation at any given point in time. With so many things which contribute to valuation, and different methods to choose from, experts are often needed to assist in the valuation process.

Here are several methods of business valuation in a Colorado divorce which are frequently used when determining business valuation.

Method #1: Market-Based Method

The market-based method is similar to how many pieces of real property are valued: the given business is valued according to how other similar businesses have sold in the surrounding environment. This is considered useful because it gives a very realistic picture of what a given business would sell for in a given area if it were put on the market (at a specific point in time).

Method #2: Income Method

The income method for determining valuation is often preferred because it takes into account the projected future income which may be generated by a given business. In this method, the current income of the business is determined, and then projections of future income are developed based on certain tools. The current income and projected future income are then combined to give a current picture of valuation.

Method #3: Adjusted Book Value Method

The adjusted book value method – as opposed to the “straight book value” method – is a very widely accepted method of valuation, although many think that it doesn’t capture the true value of a given business with sufficient accuracy. With this method, the current tangible assets of the business – such as inventory, cash equivalents, receivables, etc. – are added up, and then the current liabilities are added up as well. The liabilities are deducted from the current assets to yield a valuation.

Business Valuation is a Complex Procedure

Readers should understand that business valuation is a highly complex procedure, and usually at least one expert, and often multiple experts, is consulted to give an optimal picture of valuation. Remember, the valuation is critical, because this is a figure which will be utilized during property division, and will therefore have a powerful effect on the entire division process. In many cases, parties take time to research the best expert they can find and then expend a hefty fee to retain that expert’s services. If a valuation is found to be unusable or inaccurate, that can have a profoundly negative effect on the whole divorce process.

Contact the Drake Law Firm for Additional Information

If you would like more information on business valuation methods, property division in Colorado, or another related topic, connect with one of the family law attorneys at the Drake Law Firm today by calling 720-679-8813.

Skip to content