During divorce, there are many important considerations. When planning for your financial future, it is important to understand what happens to businesses during divorce.
Texas is a community property state. That means the law presumes all marital assets are divided in half, even businesses. However, that is not always what happens.
For example, if a business was owned by one spouse prior to his/her marriage, that business may be considered separate property and safe from division during a divorce. A similar result may occur if one spouse inherited a business during his/her marriage. However, business ownership is rarely this clear cut. If one spouse owned the business prior to the marriage, but the other made significant contributions later on, the court may divide assign different percentages of ownership (not 50/50) to each spouse. It often takes thorough investigation and firm negotiation to determine the fate of a business after divorce.
Selling or dissolving the business and dividing the assets
If running it has become burdensome or if no other arrangement can be reached, it may be easiest for all parties to sell or dissolve the business and split the proceeds and remaining assets.
Running the business together
Some couples are not good at being married, but find their business relationship is just fine. They may be able to conduct business transactions on a daily basis with few issues. It is also possible for a business relationship to improve after a divorce is final. In these cases, it may make the most sense for exspouses to continue to own and operate the business together. The court will make a determination regarding each individual’s ownership interest. If the business partnership proves to be unsuccessfully, it can be dissolved or sold and each exspouse can take his/her relative share of the proceeds and assets.
Offsetting the value of the business
Many times one spouse has little interest in running the business, while the other has a strong attachment to it. In this case, both spouses prefer to let the one interested party own the business outright. However, the one giving up his/her share will want the value of their interest.
In this scenario, the value of the business must be determined, as well as each party’s ownership interest. Business valuation is a complex process and experts are often required to analyze the value of the assets, the current cash flow, operating costs and potential earnings based on the marketplace.
Once the value has been established, the spouse who wishes to keep the business can “buy out” the other spouse with cash from his/her own separate savings or by trading his/her share of other marital assets, such as the family home.
An experienced attorney can help
When a marriage has produced considerable assets, including businesses, it is important to work with attorneys that have experience with high asset divorce and property division. A good attorney can help you make sound decisions regarding which assets are most important to your financial future.