In divorce litigation, valuing the marital estate presents legal and financial complexities. This is particularly true in states like Oklahoma that follow the doctrine of equitable distribution, and the asset in dispute is a privately owned business. In such cases, a client who formed a business before marriage may assume that the business and its growth are their separate property and not subject to division. Alternatively, the nonowning client may believe that the business is marital property, based on the duration of the marriage, and should be divided equally. However, the outcome is often far from predictable.

In contrast to community property jurisdictions, where marital assets are divided equally, Oklahoma courts divide marital property fairly, which is not necessarily 50/50.[1] But how does the trial court decide who gets what? The trial court has broad discretion in determining a business’s value, and the decision will not be disturbed on appeal unless it is clearly against the weight of the evidence.[2] Yet assigning value to a business is no easy task – the process requires a nuanced, fact-specific inquiry that must be conducted on a case-by-case basis. Although the trial court may consider the totality of the circumstances, the key factors include but are not limited to 1) property classification,[3] 2) valuation date[4] and 3) goodwill value.[5]

These factors provide a framework for attorneys and the trial court, but no single formula exists. Added complexities – such as the spouses’ conduct, business agreements and/or inadequate documentation – further cloud the analysis. Against this backdrop, a growing challenge in Oklahoma divorce cases is ensuring that clients understand the complexities of business valuation. This understanding is critical to managing client expectations and achieving a fair division of the marital estate.

PROPERTY CLASSIFICATION: MARITAL OR SEPARATE PROPERTY?

The first step, and arguably the most crucial in business valuation, is asking whether the business and/or an increase in business profits is separate or marital property. Oklahoma law presumes that property acquired during the marriage belongs to both spouses, and property acquired before the marriage belongs to only one spouse (the spouse who acquired the property before marriage).[6] When the property in dispute is a business, the court will consider when the business was formed, how the business was financed and the context of the overall business operations.[7]

An added layer of complexity arises when an asset was owned by one spouse before marriage, but the asset's value increased during marriage. This scenario was addressed by the Oklahoma Supreme Court in the foundational case of Thienlenhaus v. Thienlenhaus.[8] In that case, the court articulated that an increase in value of one spouse’s separate property that is attributable to either spouse’s efforts, contributions or skills is calculated into the marital estate.[9] But if the increase was due to market forces, then it remains the separate property of one spouse.[10] However, it is important to note that in Thienlenhaus, the asset in dispute was a passive retirement account, which is comparatively less complex to value than a privately owned business.[11]

In the recent case of Williams v. Williams, the Oklahoma Court of Appeals applied the Thienlenhaus test to determine whether the trial court erred in finding that the parties’ limited liability company (LLC) and its increased profits were the separate property of the husband.[12] Regarding whether the business, as a whole, belonged to the husband as his separate property, the court upheld the trial court’s decision, noting several key facts:

• The business was formed more than two years before the couple married.
• The couple broke up for almost a year between business formation and marriage.
• The wife testified that her role in the business was “minimal” prior to the marriage.
• The tax records listed the husband as the sole owner of the business for tax purposes.[13]

However, regarding increased business profits, the court did not uphold the trial court’s decision that business growth was the husband’s separate property and not subject to equitable division.[14]

The court observed that the following factors should be considered when deciding whether the increased profits should be classified as marital property:

• Whether the increase occurred during marriage
• If the increase was a result of passive (market forces) or active income (marital efforts)
• Proof of the increase, usually by expert testimony and adequate financial records
• Whether there is a causal link between marital efforts and an increase in profits

In applying these factors, the court observed that the evidence showed that during the marriage, the husband exerted tremendous efforts directly related to the operation and growth of the business.[15] The husband was the sole owner, executive and exclusively controlled the day-to-day business operations.[16] The husband made and received thousands of phone calls each month in connection with the business, but the court found that the wife also exerted efforts, even though those efforts were “not relevant to [the] husband’s efforts.”[17] Thus, Oklahoma case law suggests that it is fairly easy to meet the burden of showing that the increased profits of a business in dispute were due to joint industry and, therefore, subject to equitable division. However, this determination is only one part of a multilayered analysis.

THE VALUATION DATE

In Oklahoma, a business’s valuation date is not fixed by statute. Instead, the date is left to the discretion of the trial court.[18] This judicial flexibility allows the court to select a date it deems reasonably just under the circumstances.[19] The court will often choose between the date of separation, the date of trial or the date the decree of dissolution is entered. Because the chosen valuation date can significantly influence the final dollar amount subject to equitable division, attorneys must approach this issue strategically. For instance, if a business has experienced a substantial increase or decrease in profits after the date of separation due to unilateral acts of one spouse, then that fact may weigh heavily on the court’s decision. Similarly, if one party has engaged in financial misconduct or formed a competing business, as in Colclasure v. Colclasure, the valuation date becomes even more pivotal.

In Colclasure, the spouses co-owned a business where they both were employed.[20] A few months into the divorce proceedings, the husband was terminated from the business and subsequently formed a new, competing business.[21] He used the marital company’s resources to buy books, samples, mobile phones and transportation for his new business.[22] The wife further alleged that he was stealing customers from the marital company and underbidding on contracts.[23]

At trial, the wife’s expert valued the business using the “income method” and an “excess earnings method.”[24] The wife’s expert based the valuation on the business records and included money that was misdirected, claiming the husband caused a loss of $298,085.58.[25] The husband presented the testimony of his expert witness, who used a capitalized cash flow method to value the business and did not include any losses due to the husband’s actions.[26] The trial court valued the company at $480,000 and awarded the husband $235,200.[27] The Court of Civil Appeals affirmed the trial court’s decision, and the case was appealed to the Oklahoma Supreme Court.[28]

The wife argued that the trial court should have considered the loss in the business’s value resulting from the husband’s unilateral misconduct.[29] The husband countered that the parties executed a valid business agreement that established that the valuation date would be the day the divorce proceeding was commenced. Therefore, following the agreed-upon date, any loss in value due to his rival business would be irrelevant.[30] However, the court disagreed. The court pointed out that neither party had followed the business agreement, making the specified provisions irrelevant regarding the business’s value.[31] Additionally, the court held that the trial court erred in failing to consider the decrease in value due to the husband’s misconduct postseparation and remanded the case for recalculation and equitable division.[32]

From a litigation perspective, Colclasure suggests that the date that appears most advantageous early in the case may not ultimately be the most equitable. Furthermore, where one spouse's conduct leads to the business’s devaluation, the opposing party has a compelling argument that the court’s valuation should reflect the business’s worth absent the misconduct to prevent unjust enrichment. Accordingly, it is crucial to develop a well-supported evidentiary record to support the proposed date. Relevant evidence should include information on market data, business records, expert testimony or proof of one spouse's postseparation and/or unilateral acts.[33]

GOODWILL VALUE

A thorough and correct valuation must account for both tangible and intangible assets, including what is known as a business's “goodwill value.” Goodwill value refers to the worth of a business’s intangible assets, such as customer loyalty and future growth potential.[34] However, it is important to note that not all goodwill value will be considered in the business valuation inquiry.[35] Thus, it is essential to distinguish between enterprise goodwill and personal goodwill. This is because enterprise goodwill is subject to equitable division, while personal goodwill is not.

Enterprise goodwill is the intangible value of a business that exists independently of either spouse. This type of goodwill includes the company’s reputation, established customer base and operational system.[36] It is a marketable asset because it has a clear and identifiable value that can be reflected in the sale or transfer of the business.[37] In contrast, personal goodwill is directly linked to either spouse's individual skills, reputation and continued presence in the business.[38] Because of its dependence on a specific person, this type of goodwill will not be considered part of the marital estate. It, therefore, should be excluded when assigning monetary value to the business.[39]

Failure to distinguish between the business’s enterprise goodwill and personal goodwill can result in an inaccurate valuation and unjust division of the marital business. For example, In re Marriage of Dorsey, the Oklahoma Court of Appeals did not uphold the trial court’s valuation of the parties' oil company because the wife’s expert did not distinguish between the two types of goodwill.[40] In that case, the business’s tangible assets were minimal because the business’s primary purpose was to operate as a shell to protect the parties’ personal liability.[41] The wife’s expert witness testified that the value of the company included a “marketable business goodwill which was distinct from [the] Husband’s reputation and personal efforts.”[42] However, the expert failed to consider how the company’s value and operations would be affected if the husband were to cease doing business through the company, start a new business or choose to retire.[43] Because of this, the court found that the company was overvalued by the trial court, and the case was remanded for recalculation.

CONCLUSION

Business valuation in divorce proceedings is a complex process that demands legal precision and financial insight. In Oklahoma, where the trial courts' equitable division does not mean 50/50, attorneys and clients alike must understand that the outcome is shaped by more than ownership titles. As illustrated by Thienlenhaus, Williams, Colclasure and Dorsey, the trial court will consider the property classification, the time of valuation, the goodwill value of the business and the broader context of the business operations. Therefore, it is essential to present expert financial testimony and anticipate challenges, such as a lack of documentation or the effects of marital efforts for business growth. However, even seasoned experts can sometimes provide misguided valuations in good faith, as illustrated by the cases of Colclasure and In re Marriage of Dorsey. Therefore, by thoroughly analyzing the key components of valuation, Oklahoma attorneys can advocate for a division of the marital estate that reflects both the law and the lived realities of the parties involved.

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ABOUT THE AUTHORS

Jessica S. Bishoff is an Oklahoma attorney practicing primarily in family law. She represents clients in divorce, child custody and related domestic matters, with experience addressing complex financial issues, such as business valuation in divorce. Ms. Bishoff earned her J.D. cum laude from the OCU School of Law and has a background in criminal justice and victim advocacy, which shapes her clear, practical and client-focused approach to family law representation.

 

 

 

 

Molly E. Tipton is the founder and lead attorney of the Tipton Law Firm in Oklahoma City. With more than 12 years of experience, she focuses exclusively on family law, guiding clients through divorce, custody and complex estate matters with strategy and compassion. Known for her calm, client-centered approach, she helps individuals and families navigate difficult transitions with clarity and confidence. A graduate of OSU and the OU College of Law, Ms. Tipton combines financial insight, legal precision and genuine empathy to achieve lasting, balanced resolutions for Oklahoma families.

 

 

 

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ENDNOTES

[1] Williams v. Williams, 2024 OK CIV APP 8, ¶7, 544 P.3d 960, 963 (“By statute, all property acquired during marriage by the joint industry of the husband and wife must be fairly and equitably divided by the trial court. This is true regardless of how title to the property is held. The marital estate need not necessarily be equally divided to be an equitable division because the words ‘just’ and ‘reasonable’ in 43 O.S. 2021 § 121 are not synonymous with ‘equal.’”).

[2] Colclasure v. Colclasure, 2012 OK 97, ¶16, 295 P.3d 1123, 1129.

[3] Traczyk v. Traczyk, 1995 OK 22, ¶¶13–14, 891 P.2d 1279, 1285.

[4] Colclasure, 2012 OK 97, 295 P.3d 1123 (affirming trial court discretion in selecting valuation date and considering all circumstances).

[5] Dorsey v. Dorsey, 2016 OK CIV APP 33, ¶13, 373 P.3d 1084,1087.

[6] Okla. Stat. tit. 43 §121(B) (2024).

[7] See Williams, 544 P.3d 960, ¶¶3‑10 (considering when the business was formed, how it was financed and ownership/operating contracts).

[8] Thienlenhaus v. Thienlenhaus, 1995 OK 5, 890 P.2d 925, 928.

[9] Id.

[10] Id.

[11] Williams, 544 P.3d 960 at 962.

[12] Id.

[13] Id. at 962-64. The party claiming a premarital business is marital property has the burden of proof to present evidence to the court showing the same.

[14] Id. at 968.

[15] Id.

[16] Id.

[17] Id.

[18] Id. (citing Thielenhaus v. Thielenhaus, 890 P.2d 925 (Okla. 1995)).

[19] Id.

[20] Colclasure, 295 P.3d 1123 at 1126-27.

[21] Id.

[22] Id.

[23] Id.

[24] Id.

[25] Id.

[26] Colclasure, 295 P.3d 1123 at 1126-27.

[27] Id.

[28] Id.

[29] Id.

[30] Id.

[31] Id. at 1128-29.

[32] Id. at 1129.

[33] Id.

[34] Dorsey, 373 P.3d 1084 at 1087.

[35] Id.

[36] Id. (quoting Travis v. Travis, 795 P.2d 96 (Okla. 1990)).

[37] Dorsey, supra note 34.

[38] Id.

[39] Id.

[40] Id. at 1088.

[41] Id.

[42] Id.

[43] Id.