Double Dipping: How Business Valuations Impact Maintenance in Divorce | Episode 232

Welcome back to Divorce at Altitude with Ryan Kalamaya! In this episode, Ryan is joined by co-host and family law attorney Amy Goscha to explore how property division impacts spousal maintenance in Colorado divorce cases.

Whether you're a high-net-worth individual or navigating a more modest estate, understanding the relationship between property distribution and support obligations is critical. Ryan and Amy unpack how Colorado law approaches these issues and the strategic implications for both parties in a divorce.

Episode Highlights

Property First, Then Maintenance
Learn why Colorado courts divide property before considering spousal maintenance—and how the type, value, and liquidity of assets can affect support awards.

High-Net-Worth Divorce Scenarios
Does $10 million mean no spousal maintenance? Ryan and Amy explain why wealth doesn’t always eliminate support obligations.

Asset Composition Matters
From businesses to brokerage accounts to homes, not all assets are created equal when calculating income and support.

Lifestyle & Location
How lifestyle differences between Aspen and Grand Junction might impact maintenance—and why judges consider reasonable needs and cost of living.

Disproportionate Property Awards
Why courts may prefer awarding a greater share of property to avoid ongoing maintenance obligations—and how that plays into long-term financial planning.

Key Takeaways

• Colorado is an equitable—not equal—distribution state. Property division isn't always 50/50.
• The more property a party receives, the less likely they are to qualify for spousal maintenance.
• Maintenance is based on both need and ability to pay, and judges often consider the type of asset, lifestyle, and long-term earning capacity.
• Financial experts can play a key role in helping determine reasonable needs, passive income potential, and net spendable income.

📞 Connect with Kalamaya | Goscha
 • Facebook: Kalamaya | Goscha
 • LinkedIn: Kalamaya | Goscha
 • Phone: 970.315.2365
 • Email: info@kalamaya.law

What is Divorce at Altitude?

Ryan Kalamaya and Amy Goscha provide tips and recommendations on issues related to divorce, separation, and co-parenting in Colorado. Ryan and Amy are the founding partners of an innovative and ambitious law firm, Kalamaya | Goscha, that pushes the boundaries to discover new frontiers in family law, personal injuries, and criminal defense in Colorado.

To subscribe to Divorce at Altitude, click here and select your favorite podcast player. To subscribe to Kalamaya | Goscha's YouTube channel where many of the episodes will be posted as videos, click here. If you have additional questions or would like to speak to one of our attorneys, give us a call at 970-429-5784 or email us at info@kalamaya.law.

************************************************************************

DISCLAIMER: THE COMMENTARY AND OPINIONS ON THIS PODCAST IS FOR ENTERTAINMENT AND INFORMATIONAL PURPOSES AND NOT FOR THE PURPOSE OF PROVIDING LEGAL ADVICE. CONTACT AN ATTORNEY IN YOUR STATE OR AREA TO OBTAIN LEGAL ADVICE ON ANY OF THESE ISSUES.

Transcript

Ryan Kalamaya: 0:06

 Hey everyone. I'm Ryan Kalamaya. And I'm Amy Goscha. Welcome to the Divorce at Altittude, a podcast on Colorado family law. Divorce is not easy. It really sucks. Trust me, I know. Besides being an experienced Divorce attorney, I'm also a Divorce client. Whether you or someone considering Divorce or a fellow family law attorney, listen in for weekly tips and insight into topics related to Divorce co-parenting. And separation in Colorado.

Ryan Kalamaya: 0:06

Welcome back to another episode of Divorce at Altitude. This is Ryan kalamaya. This week I am joined by my lovely co-host, Amy and we're gonna talk about some geeky legal rule changes. Amy, how you doing today?

Amy Goscha: 0:23

I'm great. Yeah, this project been working on for two years, so it's pretty exciting that it's finally happening, but you're right, it's very geeky. Very into the weeds, but we want to let Coloradans know what's coming. 'cause it does affect this area,

Ryan Kalamaya: 0:39

Indeed mean. We listeners who have heard various other episodes we've talked about Eric Wolf and Melanie Wolf, our hypothetical divorce clients, they've also heard us talk about rule 16.2 and rule 16.2. Is the roadmap and what divorce lawyers and family law attorneys rely on or talk about all the time. And but there's these changes in one aspect. I'm on a committee of a subcommittee on innovative child practices committee. And it's talking about how we can change the court system to better. Manage issues involving kids, and we'll talk about that in a different episode. But this overall, Amy I guess can you give some context to what these changes what are the motivation for these changes? And then we'll get into what the proposed changes are.

Amy Goscha: 1:28

Yeah, the motivation for these changes is that there's a realization and it really has come from, I think, the Supreme Court in Colorado just recognizing that family law families are different and need to be treated different in the court system. And we have what are called the civil rules of procedure, which apply to all like civil cases. So that could be like a very big. Civil dispute where there's, like a two week trial, whereas the issues that need to be resolved by the court are different when families come into the courtroom. And so this is a recognition that families need rules that are different than just, that are applied in all civil cases. So that was the impetus. To why this was started,

Ryan Kalamaya: 2:11

and I think for listeners, even to go even higher level, there are rules on, for example, when you file a lawsuit, there's, there are rules about how big the font is for the pleading and what a pleading is. So there's a complaint. And it will say that you have to put your name and the attorney and the registration number, and then it also gets into after a particular time. Then you have to disclose information, so what witnesses or what documents are relevant. And then when you set a trial, there are deadlines by which you have to do exhibits the documents, the evidence, and these various rules. They are, called the rules of civil procedure. And so we have these rules in rule 16.2. It says that parties generally have a duty of full and fair disclosure and to be transparent with one another. But Amy, what you are saying is that these rules that we have, this one, 16.2, this is specific to family law. Other states and maybe you can talk about how other states they even expand beyond just that rule 16.2 concept, and that they have even more rules that are specific to families and aren't, related to a construction defect or personal injury case. Or in, in, listeners, there's even separate rules for criminal cases about when you have to. Set a trial and speedy trial and all these different things. And so we're trying to create these different rules. So what are other states doing Amy and how did that go into the project that you've worked on?

Amy Goscha: 3:49

Yeah, so there are several states around the us not a ton, but some especially, we looked at Arizona who has their specific rule, family rules of procedure, and they enacted theirs in 2006. And so my committee, how I got involved in this, and in Colorado we have the Supreme Court has various committees and I sit on the family issues committee. And so we were tasked within that committee to look at trends around the nation and what can we do in Colorado to try to make it easier, not only for. Attorneys dealing with this area, but also for people who don't have attorneys coming through the court system. Because in Colorado we've had a pro se crisis for a long time where there's been 75% of the people that come into the courtroom or not represented by counsel and attorneys have been complaining about judges not having time to hear their important matters. And so there was just a. A push finally to say, we're at a breaking point. How can we do this better? So we looked at Arizona, they've had their rules for almost 20 years. They've made updates and it's very well received by the courts and by the attorneys and the bar. And it's made everything more efficient. And it's easier to understand when you're coming into a courtroom, you know what's expected. Before you get there. So that was really the impetus behind Colorado really spending a lot of energy and time, coming up with can we write a procedure code that can clarify a lot of things that need to be clarified, like disclosures. We have, Ryan had mentioned 16.2, which is related just to family law, but then we also have. A rule 16 and there's also a Rule 26. And so when you're looking at all of those together, it can get pretty confusing and there's duplicative lang language that just could have been cleaned up. And so that's what we did.

Ryan Kalamaya: 5:51

Yeah. And I, for people that are viewing this we've got. Slideshow that Amy, that you and Jordan Fox had created in PowerPoint and there were seven subcommittees that were formed as part of this process. And so you've got the new and post decree in terms of getting started, case management and motions practice, discovery and disclosures, hearings and evidence enforcement, post-judgment and appeals. And alternative dispute resolution and other professionals. Amy, can you maybe talk about some of the people that were involved, as on this other committee along with you and Jordan?

Amy Goscha: 6:30

Sure. The chair of the committee was Justice Hart. She's a Supreme Court justice here in Colorado. We had a lot of judges, attorneys, court facilitators, as an example. The getting started committee, I was on that with Alana Billings, who is a court facilitator in the ninth. I also had, another family law attorney, judges. I was in charge of the a DR and other professionals committee, and I had on that. Not just attorneys. I pulled in like Gina Whitehorn, who is a previous family law attorney, and she did CFI work as well. We had people that worked for the courts. We had the head of office of dispute resolution, so we had a lot of. Different perspectives working on these committees to make sure that we didn't miss, a perspective. And

Ryan Kalamaya: 7:18

yeah. And Amy, you've asked there, there's you. So you guys finalized the kind of proposed family rules after two years. They're available for comments. We're recording this in early April. The deadline to submit comments is April 25th by 4:00 PM. 4:00 PM there's gonna be a public hearing on May 1st 2025. There's links in. We'll have it in the show notes. And for, viewers, they can see it here. In terms of where you can view the all of the nitty gritty, the actual rule changes let's dive into just the high level. Can you maybe Amy talk about disclosures and discovery and what. Changes or things, whether people are an attorney, a professional where they're involved in family law or One thing I've current, I've heard a fair amount is, for, from clients is this system is rigged against me or I don't understand why is this system the way that it is? And maybe with that kind of in mind, talk about the disclosures and discovery changes.

Amy Goscha: 8:25

Yeah. We really wanted to do is we decided that there needed to be an overhaul of 16.2, which is the Mandatory Disclosure Rule in Colorado for. Like initial disclosures in divorce. And so what we decided is that, families have, especially in divorce, like a duty to provide ongoing, rel relevant and material information. So we made some updates to, to, to the required documents that are to be provided in those initial disclosures. And I won't go through everything, but I'll give a few examples. So an example would be. Like with real estate, including the settlement statement, the mortgage statements, appraisals, and tax notices. One big thing that we added is just clarification that you get the last three months of. Yeah. Of pay of pay stubs as well as bank statements. We also clarified that you get some like trust documents. What's really interesting is even though, trust can be very material in a divorce case, it's not required to. Yeah. You have that and the initial disclosure and that's. Where people are like, this is crazy. Why am I not getting these documents? So just things like that needed to be like clarified.

Ryan Kalamaya: 9:40

So yeah the form 35.1 that's available that has a list, we send it to all of our clients. It's in connection with the sworn financial statement. The title documents and value documents, the way that it's listed. I, people, ask me do I really need to get. All of this, the employee benefits and everything, and I like, I can't remember the last time someone actually pulled the deed. It's just one of those things. But whereas like credit or loan applications the appraisals and Yeah, absolutely. The trust documents, I. That it's not in there. Okay. So you guys updated that list. We've got for people viewing the kind of, the PowerPoint does a great job of identifying those. Maybe talk about some of the discovery requests, Amy.

Amy Goscha: 10:24

Yeah, so discovery requests, interrogatories, I always explain to clients are questions that we can ask in every divorce case of the other side, and then production of documents or documents we can request. So in the interrogatories we just. Clarified a few things. Essentially to say that you could get like a social security statement. I can't tell you how many times I've tried. You can do non pattern, which are ones that we draft ourselves, that I've added that in there. So just things that. We as attorneys and also people that are not doing this everyday need, like credit reports, social security earning statements that information was just added. So it's easy to, say, okay, I will just issue this formal discovery request. That's after the initial disclosure process. But we just wanted to make it easier for people to get the information that they needed.

Ryan Kalamaya: 11:13

Yeah. And one thing Nate I've dealt with fairly recently, 'cause I had a trial, is this interaction between Rule 16.2 and 26. I am fairly familiar with Rule 26, which is for just general civil litigation. 'cause my my old firm and when I was an associate, I would. Do civil litigation. And so I was familiar with experts and the kind of various requirements in there. And most family law attorneys, they don't have that background. So they're, they don't really have any familiarity with rule 26 and specifically with like expert disclosures in terms of what the reports look like and the various other things. And so one of the things that you guys have done is to clarify that kind of overlap between, different rules, right?

Amy Goscha: 12:00

Yeah, exactly. And it's all laid out there, but specifically what's very confusing is that like how the rule is written now, like you're saying around with 26 in 26 a it specifically says that. This rule shall not be applied to domestic relations cases, even though it does apply.

Ryan Kalamaya: 12:17

Yeah, they and for people that, that may not they don't understand how the law's written. What happens is the legislature and various people they will create things and then they don't really understand what the implication is. For something else that may be interrelated. So you just have these either loopholes or oversights or ex these kind of competing interests. Yeah, that's just something that I think will be, I. Super valuable for everyone, attorneys in particular who, we geek out on these rules and use them, to our advantage or for various kind of discovery disputes in particular. Let's kind of pivot Amy and talk about Contemptive court. Everyone's favorite subject contempt of court. What are the changes that are on the table for contempt of court?

Amy Goscha: 13:04

The biggest change that I wanna highlight is related to attorney's fees. So right now, essentially if you have punitive contempt, sometimes you can't get attorney's fees, and most likely you can't unless you have a provision in your separation agreement that says that you can. So right now, like what you'll see is someone will not pay, let's say like their. Something that they have to pay, pursuant to the separation agreement. They just don't pay it and then they let it accumulate. The other spouse who needs the money files the motion for contempt. Then a few days before the hearing, the party who isn't paying pays, which purges the contempt. And then the court is left in this position of not being able to award attorney's feess and the party who. Had to file a motion is out a bunch of attorney's fees so that we just, judges don't think that's fair. Attorneys don't think that's fair. Litigants certainly don't think that's fair. So we tried to make language in there so courts can actually order attorney's fees in contempt. So it's actually the rule will do what it's meant to do, which is to enforce court orders.

Ryan Kalamaya: 14:15

Yeah, I've seen this. People will just Eric Wolf may be aggravated by, how much he has to pay Melanie and just refuse to sign tax returns or refuse to pay child support or something that he's obligated to do and just play. It's a game of cat and mouse or just dragging your feet and then. Melanie will have to go hire an attorney and file a contempt, and then at the last minute he'll come up and do what he needs to do. And then meanwhile, Melanie's out five, $10,000 because she's had to incur, incur attorney's fees because he's not, Eric wasn't doing what he was supposed to be doing in the first place. It's extremely frustrating. All right. Let's talk about the proposed GAL. Rule change. What is a GAL and what's the change?

Amy Goscha: 15:04

Yeah, and I'll get to that. I just, the one slide that you had up that is important is that someone will violate a court order and you'll file a contempt, but there can be like multiple violations. And so now we're clarifying that the court can consider multiple repetitive violations with within 21 days. Of the notice. So instead of having to keep filing contempt motion, so that was also problematic. So guardian ad litem in Colorado this has been problematic for many years. There's just been not a lot of guidance in the domestic relations area for how to use GS and what standard is applied when. The court needs to appoint a GAL. So a GAL really goes to someone's capacity and ability to understand in a divorce context, like when they, you know how their rights are being affected and if they enter an agreement. They, that they have the capacity and can understand that agreement. So that's, like a huge thing that comes up in not every case, but comes up. And attorneys and certainly litigants and judges have always had a hard time with understanding how to deal with it or how to. Appointed GAL and what is the GAL G's rule role within, the divorce context. So we now have a proposed new rule that is awesome and clarifies essentially when a GAL can be appointed. It also, allows, which I think is interesting the ability for a non-attorney to be appointed in certain circumstances. And the example that I would give is that some attorneys and judges highlighted that someone might understand an agreement, but they might not have the ability to speak like they might have. Speak language aphasia or something like that, where there needs to be like a medical person that comes in to help that person. So it might not just be an attorney who has that expertise to do that. So the rule clarifies that it could be, I. In certain circumstances, like a non-attorney to fill that role. And also a big issue that judges always ask is, can the GAL sign a separation agreement on behalf of the, the client? So it clarifies, like the decision making role when the JAL is wearing that type of a hat. So I think it's really gonna help. With clarifying that role for judges, attorneys, and also people who, their rights when they're appointed. I think the only other thing I would highlight with the GAL rule is that it does require a separate hearing if it's contested and if for that separate hearing to be done by a different judge. Because the concern is that, that there could be some bias, and also if there, if it's being contested, that shouldn't be necessarily just within the divorce court. So it does clarify that.

Ryan Kalamaya: 18:09

Interesting. Yeah. People that there's certain people that really impacts. I have occasionally had GAL issues, but they, for people that are in that industry, they should go check out the specifics of that the proposed rule changes. Let's talk about something else and change tact. Amy, the proposed informal dr. Trial rule. So what's this all about?

Amy Goscha: 18:33

So this rule really came from, we looked at various states. This one is based off of Alaska. I. Alaska's pretty progressive when it comes to dealing with pro se parties. Essentially this rule, and I won't get into all of these specifics a lot of judges reported back to us from around the state of Colorado that they're already doing a lot of these things, like when they have people who come into their courtrooms who are not represented, like they're sitting there with two people that maybe are still filling out their sworn financial statements. So the way that they're conducting the hearing is they're. Asking the litigants questions, like it's not the litigant asking the other party questions because they don't even know what questions to ask. So it really just codifies a lot of what judges are already doing. But provides a way to opt in if you're not represented to an, a more informal trial, process. I will say that this rule. There's gonna be a lot of comments on this rule because I think it can be drafted better in certain respects. But I think it's gonna be a great tool for judges and also. For it to make, like it more accessible for people who are not represented in court to get their disputes resolved.

Ryan Kalamaya: 19:45

Yeah. The, it seems as if this is codifying what I've seen a lot in particular on the parenting disputes that go to arbitration or that are with. PCMs. For example, parties will not be cross examined. And so I've seen that not people have pretty strong feelings. I, as a prosecutor, I remember, one of my first kind of hearings was this traffic or a speeding ticket. This guy was charged with speeding and he wanted to challenge it. Went into, we, we had a trial, and as a lawyer he didn't have an attorney, and I'm objecting to hearsay and all these other things. Then the judge just looked at me and was come on, Ryan, like this is a speeding ticket. Let's and obviously when people are in, like they, they're dealing with their kids. These family law issues are really important. But it went to Ryan, your lawyer. He's trying to, litigate a speeding ticket. Give him his fair, his day in court. But you don't need to be this rule, dictator and really use, there are circumstances in particular when people don't have attorneys that we just want to get the information and let judges make that decision based on the kind of best evidence without. Rigid adherence to the rules of evidence or other kind of procedural things that so I encourage people to check out that informal trial rule 16.5. Yeah, go ahead.

Amy Goscha: 21:23

Oh, the last rule that we're gonna highlight is in Colorado we have the child and family investigator and the peer E. So there are some clarifications. And what's interesting about this role of experts is that their guidelines are all over the place, which is not great. These rules, just to clarify, they don't change statute. And what that means is it doesn't change the Colorado revised like statutory rules. It also doesn't change Cjds, which are chief justice directives. I. And so we put in this rule like all of the places where someone would have to look to see, when they're looking at appointing A CFI or a PRE where do they need to look besides this rule. Some of the things that we clarified though were that the expert disclosure rule said you, said, says now that you, any expert needs to provide a draft report. That never happens with CFIs or es. So we just clarified that they don't have to provide a draft report. Another issue that came up is CFIs and ES getting inquiries about what cases they've been on or, who's deposed them. So we did clarify that they are supposed to provide at least the last four years of. What cases they've testified in and who has deposed them. There was a general consensus that CFIs Andes should not be deposed. However, we do recognize that there's like rare circumstances where maybe they would be. So we still gave the court di discretion to be able to order that if it was necessary. And we just clarified attendance of hearings and knowing that a lot of experts are appearing virtually. So we just clarified some of that language as well.

Ryan Kalamaya: 23:15

All helpful information. I have yet to provide comments. And, I'm gonna dig in and, encourage attorneys, members of the public whether you've gone through a divorce or you're currently in a divorce. I think you've got some insight into how these rule changes. Could benefit, hopefully, or what may be unintended consequences. There may be. And I think that's really important to mention is that's why we have these proposed rules, but then they're not enacted immediately. We seek. Comments and that's part of the process by which these rules are promulgated and really encourage people before that April 25th deadline to, to get your comments in. Anything else, Amy, as we wrap up?

Amy Goscha: 24:05

No, I think, yeah, just the call. We want perspectives from everyone because we might not know what the unintended consequences are, please provide us with your comments.

Ryan Kalamaya: 24:14

Welcome back to another episode of Divorce at Altitude. This is Ryan Kalamaya. This week we're gonna be talking about the double dip. Amy, when I mention the double dip, what am I talking about? You are talking about essentially like I'll say funds that are used, dollars that are used in evaluation of a business, so like in property, but then are also then used to calculate. Support. So that's what we're talking about Indeed. And Colorado is unique in how we view or don't view or in my view ignore the double dip. And so it relates to business valuations as well as support, whether that be child support or spousal maintenance. And so Amy, for listeners who. Don't really understand that. Where's the first kind of issue or thing that comes up with the business valuation component? With the double dip? Yeah. So the first thing we look at is really personal goodwill. So I know, Ryan, you've had several cases recently looking at this. Can you. Explain the difference of the definition for personal goodwill versus enterprise goodwill. Yeah, the, we had an episode with with Raj on intangible assets where we got into personal goodwill. I think the easiest people for the kind of example that people can understand is personal goodwill is. The value of the business owner compared to enterprise Goodwill, which is the value of the brand. So certainly Apple is an company that, everyone knows people would line up in. Overnight to get an iPhone. And that is, that's because they've got that little apple sticker. Amy, it used to be like, especially in like Boulder you would see these Apple stickers, these people that were just super, apple geeks and ma Mac Geek Geeks. That is the brand now. There's also Steve Jobs and everyone knows Steve Jobs and there are definitely people that would go to buy an Apple product because Steve Jobs right now we've got an interesting political climate where Elon Musk is a super polarizing, figure and, there was an article in the paper where. The deliveries or the orders for Teslas, they've declined and it's because of Elon Musk. So Elon Musk has the personal goodwill and it's his impact. And that's separate from the brand. So the personal goodwill, it's tied to in essence. The business owner or an, or a particular individual's reputation, relationships and skills. And it really, it can't be sold or transferred separately from the business. Now Colorado, we include personal goodwill in the value of the business, and there was this excellent article in the Family Advocates, the American Bar Associations. Publication on for family law. And there was a, there was an article and it has these, it discusses personal goodwill and whether it is included as a marital asset. So Colorado is in the minority in terms of. Whether we include it, so Arizona, Michigan, Montana, Nebraska, Ohio, Michigan or Washington. They, those states, including Colorado, again, they include personal goodwill. Now that is in contrast to Connecticut, Minnesota, Oregon. Georgia, Illinois. There are states that explicitly exclude personal goodwill. We'll talk about how you calculate personal goodwill. Now there are, then there's a third category or grouping of states where it's like the Facebook relationship status that people. We'll remember where it's complicated and the relationship status with personal goodwill and California, Idaho, Tennessee, Wisconsin it's complicated. So sometimes it is included. Sometimes it's not. Let's talk about what enterprise goodwill is. And I gave a, an example with Tesla and Apple, but enterprise goodwill. Is the value of the business that can be transferred or sold. So if you're gonna sell, if you're gonna buy Apple stock, then you are buying, in essence, the brand, whether Steve Jobs or Tim Cook, or whoever the CEO is, you still, you're buying the goodwill. Of the business. And that is something that people really should understand is that difference between personal goodwill and enterprise goodwill. How this comes up is personal goodwill is it is the bulk of the intangible assets of goodwill. And I guess to take a step back, and this is what Raj and I talked about in our episode on intangible is every business will have some. Tangible goodwill, or I'm sorry, tangible assets. That's gonna be the cash in the bank. It's going to be real estate trucks, equipment, computers, that is the physical assets of the business. When we talk about goodwill, whether it be personal or enterprise goodwill, it is the value of the business above and beyond those physical. Assets. So anything that, you have money in the bank and of course you're gonna net that out and reduce it by any sort of debt or obligations that are owed. But anything above that is, is goodwill. And when you are valuing a business in terms of personal goodwill you really. Talking about lawyers real estate brokers, accountants doctors, those are professional. That's, those are professional practices where there is a, we're really focused on personal goodwill. Anything you want add to that, Amy? Yeah, when I think of Goodwill, where I think it makes a huge differences in those like professional service businesses, that's exactly what I think. So can you Yeah, indeed. And so when we're evaluating the personal goodwill, and we'll talk about the kind of the excess earnings method, it's a manner or a method that it's an income approach that business valuation experts. Use and, but really what the things that are going to be determinative of a personal goodwill. And there was a California case that kind of really outlined this, and it's gonna be the agent health of the individual, the business owner, the individuals demonstrated earning power. Their reputation in the community for judgment, skill, and knowledge the comparative, practical or professional success. How, what would've, or have they won awards? Have they what kind of earning capacity have they have, they had, and then really you're getting into the nature and duration of the. Prof professionals practice, as a sole proprietor or as a contributing member of a partnership or professional corporation. So there's gonna be different methods or different ways that we're gonna view professional or personal goodwill. A doctor. Is gonna be different than a real estate broker and how we view lawyers and the kind of professionals people come to, professional practices. Certainly Amy. Some people call me Gosha, and they're like, I want Amy Gosha. They've heard you and they're coming for you. And likewise, there's people that come, because they've heard. My name and, those, that is really the professional or the personal good goodwill and, the es the excess earnings method is how we really value the amount of that personal goodwill. Yeah, you went over some of those factors, but just to give people an idea, like if they were having their business valued and it was professional services, what types of. Like documentation would the evaluator be looking for? Yeah, so almost always we're bringing in experts, so valuation experts, and generally speaking, they, you're gonna use the excess earnings method and so the excess earnings method. Is going to and I'll answer the documentation, but I think it's helpful for people to understand what it is that the valuation expert's doing is really they're gonna start the valuation expert's gonna start with the co company's normalized. Earnings. So these are earnings of the business adjusted to remove non-reoccurring, non-operating or owner specific perks. So it, the valuation expert is gonna look at the profit and loss statements, the balance sheets, bank statements, credit card statements, tax returns, really and to understand. Is this business, does it go up and down? Is it trending up? Is it earning more money? But also to really understand what are the kind of perks or other things that, someone may have, for Certainly we've seen, professional practices where people, they have a snowmobile. Or they, and they go out and they expense that to the business. Or they have a country club membership and, they expense that to the business. If, a neutral third party is gonna come in and buy that you know that, that business well. They don't need the snowmobile, they don't need the country called membership. There is every, business, there is some personal expense. Gas or telephone, the, a lot of people will drive, for example, like up here in the mountains if I expense. All of my gas and transportation. If I go down to the Broncos game I might see a client and, might expense that. But is there some element of personal benefit to that, that, another owner wouldn't really need? Absolutely. So they're gonna, the evaluation expert's gonna add that back in. Yeah. Then just, yeah, go ahead, Amy. People like can, so essentially you'll see your profit and loss data or your balance sheet, and the expert will come in and you'll see the adjustments that are made where they're taking out. The personal expenses. So that's what Ryan is talking about. Yeah. And we can argue about how much, if any, and it really depends on, the ad the adjustments. So if there was an event two years ago you, we're talking about some sort of event planning business. If there was some, huge event a year ago is that gonna be repe? Is that gonna be. Informative of what's gonna happen in the future. You, like you could add that back in or you could exclude it. Those are the sorts of things. Real estate brokers we can talk about what the, impact of Covid was on real estate. Everyone generally knows that real estate went through the roof in 2020 and 2021, and there were a ton of deals, especially up in the mountains. People were going back and forth and people that were selling real estate, they made a lot of money. In 2020 and 2021, mortgage brokers, everyone affiliated with those years. Now, do you include those or do you exclude them? And so that's really what you're getting at in terms of normalized earnings. Then the second step that these valuation experts are gonna do is they're gonna deduct the, a fair return on the tangible assets. So if a real estate broker has, money left over from the go-go, years of 2020 and 2021. And they've got $2 million in the bank. Where, what's a return of investment? They could have had that in a money market account and generated money or a return on investment. Same thing with equipment or other things. And so what the valuation expert is going to deduct a fair return on those tangible assets. So there is gonna be some element of what the company owns, but really what we have remaining. Is gonna be the access earnings and the the valuation expert is going to focus on what does a normal lawyer make? What is a normal real estate broker? Make what the. Premium or the addition or the delta on what the business owner that we are evaluating what they earn. That's the value. So it's, you just get paid if you were a normal lawyer. You are paid a particular amount to go work at a firm, but you make two x that, that difference is the value, the personal goodwill that you have. And so what they do, the valuation expert is they then apply a multiple and they multiply that out. So what we're really talking about is if a normal lawyer is, or a doctor, for example, if they're. A normal compensation or salary is let's say $400,000 for a doctor. If Eric Wolf is a doctor who makes, $800,000, then the kind of excess earnings is gonna be $400,000 and then it's gonna be that they're gonna apply a multiple and. There's a case that we will talk about in terms of inner marriage of Huff in Colorado, but there was a multiple of three, so you took three times 400,000. That means that the business is worth $1.2 million, so you are applying a multiple, and in essence. You're predicting the future access earnings for that particular professional. And that's how we are measuring personal goodwill is you're applying a multiple to a revenue stream over time. Yeah. And so the, a business evaluator will interview the, like CEO or the doctor or the lawyer, but they'll also do research to figure out like what. If we replaced this doctor, would their salary be the same or would it be less that's what Ryan is talking about when it comes to the multiple as well. And then, if we take that $1.2 million for, let's say it's a dentist the dentist, the value, the personal goodwill of the dental practice is $1.2 million. Then you add the money in the bank and you have all of that, and that's going to, result in let's say $2 million. Then, Eric Wolf's a dentist is the value of his goodwill is $1.2 million. Then Melanie Wolf. She's gonna, what is she gonna do, Amy, when she gets half of the $1.2 million for those future earnings, what is she going to ask for undoubtedly after we divide the property, she's gonna be asking for support as well. So how does that affect, can you explain what is happening in courts now with. Like personal will or personal goodwill is being dealt with in the business valuation. How is it also being looked at in income? So the double dip refers to you take that $1.2 million for Eric Wolf's dental practice, which again is based on him earning $400,000 more than the normal. Dentist over the next three years. And so in essence, you're using the his income for future years to determine the value of the business. And Melanie, she gets a share of that. And let's just assume that she gets 50%. So you're counting that once she gets the value of the dental practice, which is based on his future income, but then she's also gonna turn around and say Eric, you make. $800,000 and that is the income that you generate and we're gonna use for the determination of whether it be child support or spousal maintenance. And so again, you got $400,000 of. Reasonable compensation, what a normal business owner or what a normal dentist makes, but then you got another $400,000 for what was included in the value of the business. And you're going to, Melanie is going to say it should be the $800,000 you use. Of course she wants the highest amount. And there's a case in Colorado in interim marriage of Huff. It was a 2016 case. And in essence it says that is not. Double dip. So it is totally fair for Melanie to argue or to basically claim that the entire $800,000 should be used support, and really the case says in that case the valuation experts, they at least the court interpreted what the expert said was that. They did not they, the excess earnings method was not including future income and, the, there wasn't this risk of double dip because the valuation that was performed was not based on future. Income. Most valuation experts that, that I interact with, they will admit, excess earnings, the way when you capitalize excess earnings, you are including future income. It may not be with, other income approaches, but certainly with the excess earnings method. It is absolutely based on future income, but in Colorado, the law is that we're not double dipping. I had a recent case where this issue came up. New York, for example, there's specific case law, I, identifying the risk of, including personal goodwill. Which is based on future income as well as the double dip in including that income for spousal support. But the law in Colorado is in interim marriage of Huff. I think fundamentally it makes sense to people. It's not fair for, Eric to pay. The value of the business that's based on his future income, and then again, pay for support based on that. But we, have the law and, it, it really is gonna drive how cases are settled and negotiated and ultimately litigated. What are Ryan, some possible solutions, because it does to me seem, we've had this discussion like an unfair result. So what are some possible solutions moving forward? Yeah, I think possible solutions are first we, we've talked about in previous cases about the value of property and how you really looked at the value of property before you really talk about the support obligations. And and Melanie. Is gonna have, some money that she is gonna get for the value of the business. Can the court really look at listen, you're gaining, the value of the business and it's maintenance is discretionary in terms of, the court really does have wide latitude in terms of sitting in equity. To fashion, rulings. And if they understand that concept, then they can take it into account. I think that another strategy or thing that someone can really take into consideration is that. Is it fair to do that $400,000 that the kind of underlying the support obligation? Because when you have reasonable compensation, and we've talked about this in previous episodes with business valuations, people can the business valuation expert, what they do in terms of evaluating Eric Wolf and like his. Dentistry, P practice and whether or not there's reasonable compensation, the higher his reasonable compensation, the less value the business is worth because there's less profits. And so that excess earnings is less. So if we, if the business is generating, same example, $800,000, and if instead of $400,000, we say geez, dentistry. It's in a high demand, the salary for what he, does is actually $600,000. All of a sudden you've taken that income stream that's being capitalized and it's reduced down to $200,000. Is it fair to take the 600,000 or 400,000, this the reasonable compensation? Is it fair to use that? As the basis for income in determining support. I think that certainly, makes sense. The other aspect that you get into is if you're taking a capitalization rate of, let's say three, really what you're doing is three years. And but if we have a maintenance situation, a long-term marriage of 20 years Melanie's really getting. Three years of future income, but the maintenance guidelines would suggest she's looking at 10 years of maintenance. So she's getting, a portion of that future maintenance and future income stream, but she's not getting all of it. So what would be, would it be fair to reduce that for the three years and then reevaluate? Or does it, do you take an average there? There's certainly different. Approaches that you can have to avoid or mitigate the double dip issue. But I think, really what I would. Love to see is a case that goes up on appeal where this is reevaluated. Quite frankly, I think, there's I wasn't involved in your marriage of Huff. I posted about this on LinkedIn and there was several comments. There was one that just said, point blank. This was wrong. And, if you look at other states and how they approach it, New York I mentioned previously, other states I think it really bears further examination, but. I wasn't involved in Huff. I can only read the opinion. I think that certainly if valuation experts are going to be candid and, honest and say, I used the excess earnings method and the excess earnings method that I used was future income then a judge. Can say okay, I heard the expert say that they're using future income. That is different than what the assumption was in Huff, because Huff really is clear that there was not a risk of double dip because they were not using future income. And you can distinguish that. And so really I think having attorneys and experts work together to make sure that is. Crystal clear. I had a case recently where the expert literally had a table of future income, and so it said, in 2025 and 2026 and 2027, this was the kind of the expected, amount for the business. And so that is distinguishable when we say listen, like I don't this Huff case, I don't really like it, or I don't really understand it. But you can, you don't have to ask a trial court judge to overturn the Colorado Supreme Court. Even if they disagree with it, you can ask 'em to say. Or, basically fine, Hey, this actually doesn't apply to me because this is factually, this is distinct. I did not have, a professional and huff, it was a lawyer, but I didn't have a lawyer who the valuation expert said, I am not, I'm just taking a present value and there's no risk of. Kind of including the future income. So that's just one final thing. But I would love to see something, go up on appeal. I've talked with other attorneys on it. And I really do think it's worth, evaluating. Yeah, very helpful. And I think the final thing is that, that we will add or finish up with, there are factors or items to consider for, personal goodwill. Because one thing Amy, you and I have talked about is, experts, they're expensive. And so is there really a significant amount of personal goodwill? And those are some of the hardest cases, I think, to navigate where. Okay. A real estate broker or a dentist or a lawyer or a CPA, they might make. A little bit more than average, and especially up here in the mountains. People, the income is higher, but the also the cost of living is higher. So do you take that into account? But I think that, for, people to and attorneys and people, Eric, Melanie, if they're going through a divorce, I think, there's a couple factors that consider of whether or not there really is a significant amount of goodwill. And so one would be the, whether the customers interact with the owner personally. If they do, then that suggests that there is, some material amount or there is some personal goodwill. It's, the other question might be whether the small business is highly dependent on the owner's skill or skills and personal relationships. A another factor is whether the owner has a non-compete or an employment agreement. If they're gonna sell the company. Does the owner dedicate many working hours at the business? If they're, off in Costa Rica on the beach, all the time then and the business kind of continues to plug along, then that suggests that, there's more enterprise value than really personal. Goodwill whether the financing for the business is based on the owner's finances and if, are there personal guarantees? If so, then you're probably, looking at some personal goodwill. The customer's decision to buy or use the business is due to the influence of the owner. If yes. And then, and basically any of these factors. If the answer is yes, then that suggests personal goodwill. Clients come due to the reputation and quality of work of the owner. Another factor is the business owner well-known in the industry and community where the business operates. Do they have a podcast? I is the is another factor is that does the owner if the owner left the business, would the sales of the business decline? And then finally, is the company's name in the name of the owner. People listening to this. There's definitely personal goodwill for you and for me. And we have some personal goodwill, but there's also some enterprise value there. There's people that will come to Cal me Gosha for criminal defense or personal injury because they like our logo or they've just generally heard, Hey, this is a good firm and they don't really, care who it is. They just trust that whoever works with us or works for Cal Mago rather. Is going to be really good at what they do. And so I think people need to understand that and take a step back and evaluate, the aspects involved with their divorce and if there's personal goodwill, then they need to be aware of the double dip because it's gonna potentially come up in child support and or spousal maintenance. We will wrap up. Hopefully this episode's been useful. If if it has, please, give us a, like on social media or wherever you may be listening to this episode. And until next time, thanks for joining us on divorce.

Ryan Kalamaya: 24:14

Thanks for listening or watching this short lesson on the Divorce Ude podcast. If you found this helpful, please leave a review or share with a friend. It does help for others that are going through or thinking about a Divorce in Colorado. If you want to find out more information, Please visit Kalamaya Law or Divorce at Altittude dot com and that's K A L A M A Y A law. Remember, this is educational information, it's not intended to be legal advice. Please consult with an attorney about the particulars of your case. We're happy to answer questions. Feel free to give us a call at (970) 315-2365.