How are Business Assets Handled in a Texas Divorce?
Business Assets In Texas Divorce
The state of Texas is home to a multitude of businesses, both large and small. Businesses are the core of Texas’ great economy. But how does a Texas court handle a business asset should a marriage dissolve?
First – Is the business part of the community estate?
Texas is a community property state. Only property, including business assets or companies, that were accrued or created during the marriage are subject to a division by a Texas divorce court. If a company or business was created prior to the date of marriage then that asset the spouse’s separate property and is not subject to any sort of division during the divorce proceeding. If the date of creation/inception of the business asset is murky, the spouse claiming it was created prior to marriage will need to provide their legal team with any relevant documents that evidence its date of creation. The burden is on the spouse claiming an asset is separate property to prove to the court that it is in fact separate property.
Second – What type of business is it?
Small companies or sole partnerships with little revenue or business assets such as equipment are often easily dealt with in a divorce settlement. If a spouse owns a sole proprietorship with minimal tools or assets of value, then the business entity and its accounts almost always go to that spouse as there is little relative value to the non-involved spouse. If a company is profitable because of the ownership or face of the company, its “goodwill value” generally goes along with the owner and there may be minimal actual property value to the company itself.
Large Business or Corporation
If the contested asset is a large business or corporation with ample assets or corporate stock, then one spouse can be awarded the entity itself while the stock is sold for liquid assets to be awarded to the other party. For a majority of companies in a contested divorce, it will be important to obtain a business valuation. Unless it’s a publicly held company, whose value is based on its stock, it can be difficult to ascertain what a company is worth. As business valuation will compare the company to other companies in a comparative market analysis or it will examine the company’s assets, debts, existing contracts and make a determination on the company’s worth. These valuations can help the parties or the court determine the value of the company for purposes of fairly dividing the entirety of the community estate.
Rules and Limitations
Certain companies, like a franchise restaurant or chain, have ownership rules and limitations, so the parties, their legal team, and the Texas family law court will need to keep that in mind. A professional company, like an accounting firm or a physician’s office, cannot be owned by a non-licensed professional. So, the type of company may determine what limitations, if any, would be in place relating to its division in a Texas divorce.
Third – What if the business is jointly owned or both spouses are involved?
This can make an already contentious divorce even more complicated. Often times it is impossible to split the business in a way that both sides can continue to profit. The Texas family law court system does not want to derail a company’s financial prosperity by butchering its business structure. In this situation, the presiding court will do its best to come to a reasonable property division without destroying a business by dividing it. This may be done be awarding the entirety of the business to one spouse will awarding all real property and retirement to the other spouse. This can also be accomplished by ordering the spouse who is awarded the business asset to pay the other spouse their community interest in the business via a structured payment schedule.
Profitable Businesses with Strong Valuations
If the business is profitable and has value (that is not specifically attached to one of the spouses like a CPA or medical professional) then it may be easiest for the business to be sold and the proceeds split between the parties. This helps the court to avoid determining which spouse “deserves” the company and is an easy way to fairly split the business proceeds.
Considering Joint Ownership
Some Texas businesses are run by amicable spouses that have no desire to change the business structure or award the entirety of a business asset to one spouse in the divorce. Can a divorced couple continue to jointly own an operate a business? The answer is yes, but typically only if the parties both expressly desire this and believe it will work in the long run. A Texas family court does not want to force parties who have no desire to remain married to one another to remain as business parties. If a party requests in their divorce pleadings that the business asset or entity be split, a Texas family court will likely do that. But if the parties are amicable and believe they can harmoniously continue to operate the community property asset, then a court may award each party a fifty percent ownership stake in the entity. Once the divorce is finalized, any subsequent business decisions, such as selling ownership share, would be handled like any other jointly-held business interest.
To learn how business assets are handled in a Texas Divorce, Contact Us Today!
As one can see from above, there are a multitude of ways that a Texas court can divide business assets in a divorce. Each case is unique and comes with its own complications, so it is important to meet with a licensed Texas attorney who has experience in valuing and dividing business assets during the divorce process. The team at the Ramos Law Group, PLLC has experience handling all sorts of business entities and assets and can review your circumstances and assist you in formulating a strategy.