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The fate of your small business during divorce

by | Feb 8, 2020 | Firm News |

Before you got married, it may have occurred to you to look into the benefits of a prenuptial agreement to protect your family-owned business from the consequences of a potential divorce. Whether you postponed the idea or dismissed it altogether, you may now be wishing that you had put that plan into action. If you are now facing divorce, you have every reason to be concerned for the well-being of your business.

Texas is a community property state, which means that, in a divorce, the court presumes that all property claimed by the parties is community property, and then divides all jointly-owned property fairly and equally between the spouses, with some exceptions. The burden of proving that separate property is NOT community property and is therefore NOT subject to division by the Court falls upon the party asserting the existence of separate property, which must be proven by “clear and convincing evidence.” Even if you owned your small business prior to getting married, there is every chance that your spouse can claim any profit or appreciation that took place during the marriage, especially if you took no steps to protect it. You may have limited choices if your business is on the table during property division.

Weigh your options carefully

When a family-owned business is part of marital assets, the first step is to obtain a third-party appraisal on which you and your spouse can agree. A true valuation of the business and all its assets is critical to protecting your interests during property division and avoiding financial struggles after the divorce. You will want a clean delineation of those business assets that are marital property and those you own individually. Once you obtain an acceptable valuation, you have three choices:

  • Buy out your spouse’s portion of the business, including any shares, either with a lump sum, trade of other marital assets, or an agreement to pay the amount over time.
  • Continue sharing the business with your ex, which may be an emotional challenge and will require a carefully structured agreement and a plan for what to do if it does not work out.
  • Sell the business and all its assets and divide the proceeds, which may take considerable time and additional expense and often extends the length of the divorce process.

Ideally, you and your spouse can work out a fair and reasonable solution that does not involve liquidating the business, if that is your goal. This may require some skillful negotiations. Like many business owners in your situation, you may gain helpful advice and solid representation after consulting with an experienced Board-certified Family Law expert attorney working in Collin County, Dallas County, Denton County and surrounding areas of Texas.