Divorce is often a challenging experience for anyone. However, the process can be extremely complex when it involves a family business.
In Texas, family-run companies may be considered marital assets under the state’s community property rules. Therefore, dividing the entity is a critical part of the divorce process.
Factors for establishing separate vs. community property
One of the first steps is determining whether the business is separate or marital property. Any assets acquired during the marriage are typically community property. However, it may be deemed as separate property if one spouse started the business before the marriage.
Several factors can affect this determination. If you used marital funds to support or grow the business, part of its value might be considered community property. Contributions from both spouses, whether financial or through labor, also play a role.
Documentation, such as business records and financial statements, can help clarify these contributions.
Getting an accurate valuation is essential
Fairly dividing a family company requires an accurate valuation. This means appraising the business to understand its true worth. An unbiased professional, such as a business appraiser, can conduct this assessment. They will consider various factors, including revenue, assets, liabilities and market conditions.
An accurate valuation helps both parties receive a fair share while avoiding disputes and encouraging a settlement. Working with a divorce attorney who understands complicated business valuations can be crucial. They can guide you through the process and advocate for your interests.
Three ways to divide a business
When distributing the amount considered community property, three main options exist:
- Buyout: One spouse purchases the other’s interest in the business, allowing the buying spouse to retain full control. The selling spouse receives a lump sum, payments or other financial remedies.
- Co-ownership: Both spouses continue to own and operate the business together. This option requires cooperation and a clear agreement on roles and responsibilities. It may work well if both parties can maintain a professional relationship.
- Sale: Spouses agree to sell the business and divide the proceeds. Many choose this option when neither spouse wants to continue running it or they cannot agree on a buyout. Selling the business can provide a clean break and liquidate the asset for distribution.
Dividing a family business during a divorce can be complex but understanding your options can help you make informed decisions. An experienced divorce attorney can protect your interests and help ensure that you receive your fair share.