The division of a marital property business can be the biggest issue for business owners who file for divorce. Texas is a community property state. Excepting proof of gifts, clearly designated personal injury settlements and previously-held assets, the community estate represents all assets acquired during the marriage. Unless there is a prenuptial or postnuptial agreement, this means that both spouses own an equitable (or “just and right”) portion of the business if the business was started or bought while the couple is married.
Determining the value of the business
The longest and most complicated part of dividing those community assets will likely be determining the value of the business or a spouse’s percentage of ownership of the business. Whether it is sole proprietorship, partnership, C-corporation or S-corporation, the business structure will affect the ownership, taxation and how it can be divided. There are many factors that go in a business’s value as well. A certified public accountant (CPA) or professional expert business appraiser can often provide insight that will impact the entire divorce valuation process.
Options on what to do
Once the value of the business is determined, there are different options on what a couple filing for divorce can do with it:
- Sell the business: One option is selling the business and splitting the profits, which can then provide capital for the two sides to start new businesses. This has the benefit of being a “clean break”.
- One side buys out the other: After the valuation is done, one side may opt to structure the purchase as part of the division of assets (perhaps using IRAs or equity in a home), or by using liquid assets for payment. A structured settlement of the sale of the business using payments over time is also an option.
- Dissolve the business: There are specific rules for closing a business, but there are advantages that include avoiding debt or liability. It is another example of a “clean break”.
- Remain business partners: Perhaps one area of strength in the relationship was the ability of the two parties to work together. It is generally not recommended, but make it work and still remain business partners after the divorce.
Some family law attorneys are better equipped to divide a business
An experienced Board-certified Family Law expert attorney can provide knowledgeable guidance throughout the divorce process, particularly as it relates to dividing such important assets as a business. Whether during mediation or in court, a Board-certified Family Law expert can help ensure that the arrangement is an equitable one for you.