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Divorcing with a Business in Texas

Divorcing with a business in Texas can seem overwhelming, but with the help of a knowledgeable attorney and a team of experts assembled to assist you with all of the potential issues you may encounter, you can come out on the other side of the divorce having achieved the outcome you want. There are numerous questions that must be answered when it comes to businesses owned by one or both parties to a divorce. Is the business community property or separate property? Has a valuation been performed? Is the business owned wholly by one or both parties or are other shareholder’s involved? These are merely the initial questions to be answered.

What To Do If You Are a Business Owner Going Through a Divorce in Texas

If you are a business owner going through a divorce the first two things, you need to do are gather information and decide what you want the outcome of the divorce to be regarding your business.

Is The Business Community or Separate Property?

It will be important to first determine if the business if community property or separate property. Some key information that is necessary to make this determination is the date of marriage, the date the business was founded, what funds were used to start the business, and how each spouse contributed to the business during the marriage. Even if the business is determined to be separate property, there may still be some community interest or a reimbursement claim to the other party’s separate estate or to the community estate.

If the business was started prior to marriage, the business is typically separate property. There can be exceptions to this rule, so speaking with an attorney who is well-versed in family law is imperative.

If the business was started during the marriage, it is most likely going to be viewed as a community asset. What does that mean? It means it is subject to division just like any other asset of the marriage.

Is there a Comprehensive Business Valuation?

A business valuation will most likely be necessary unless you and your soon to be ex-spouse are going to continue to co-own the business or can reach an agreement on the value of the business without hiring experts which can be risky (this assumes there are no other owners of the business outside of the married parties). The value of the business and how much each spouse will receive for his or her portion of same will need to be determined.

There are other issues such as good will. Commercial goodwill is community property and subject to division. Personal goodwill is separate property and not subject to division. How do you determine which is which? You need to hire a business valuation expert to make that determination, prepare a report and be prepared to testify about how they reached their conclusions. The team at Scroggins Law Group have numerous business valuator with whom they have worked over the years to determine the character of the business (community or separate), good will issues and the value of the business.

Clarify What Outcome You Want with Your Lawyer

At the start it will be important to decide what your ideal outcome is and communicate that with your lawyer. You will need to decide what your priorities are and then with the help of your attorney, determine the best plan of action. Why is this so important? Because you should be careful, you might get just what you are asking for.

So, the lesson here is not to ask for something that you do not want, i.e. the business.  Seek the valuation of the business and then determine how you will buy out your spouse or vice versa and the reason for same.

What Choices Do I Have as a Business Owner?

There are a wide variety of businesses, each of which comes with its own issues when disputed during a divorce. Regardless of the business type, the overreaching issue will be that of characterization of the business. If it is separate property, the business will not have a potential change in ownership. However, you might have issues such as retained earnings, as income derived from a separate property business is community in nature. Hence the reason it is so important to speak with board certified family lawyers who have heightened expertise in this area of the law.

If the business is community property, the questions posed will include ownership and whether to sell the business or buy out the other spouse’s interest in same.

Buy Out Your Spouse

This may be the best option as long as there are sufficient assets to complete the buyout. This can be accomplished with cash or something else such as other property, equity in a home, or securities. It allows for a clean break and lets one spouse continue with the business while the other spouse can invest in a new business venture of their own or use the money for some other interest.

If there are insufficient assets at the time of divorce to buy one spouse out of the business, the parties could entertain the idea of a payout over time. If there is a payout over months or years, it is imperative that the debt obligation is properly leveraged so that you have a remedy if your former spouse is unable to make all the payments as contractually obligated.

Sell the Entire Business and Split the Money

Selling the business and dividing the proceeds comes with pros and cons. It can be a very clean way to dispose of the business and cut ties with your soon to be ex-spouse. You will each receive proceeds that you can choose how to use. A downside of this option is that it can be difficult to find a buyer, the price might be a “fire sale” if people know you are seeking to sell based on a court order and it could take far longer than you would like.

Keep Dual Ownership

This is one option available and might seem like an easy option, but it is essential that you remain amicable with your soon to be former spouse for this to work. As this requires a great deal of trust and the ability to work together, it is rarely a good idea that the parties continue to jointly own the business. This option is not ideal for most divorcing parties because it is not a clean break, but it may appeal to some.

If You are a Texas Business Owner that is Facing Divorce, Contact Scroggins Law Group Today

The expert lawyers at Scroggins Law Group, PLLC, a family law firm, are made up of numerous board-certified family law specialists. If you are facing divorce and own a business in Texas, reach out to Scroggins Law Group, PLLC today to set up an initial consultation with one of our professionals.  

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