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What Happens to the Family Business in a Divorce?

If you and your spouse created a business together and are looking to dissolve your marriage, you may be wondering what will happen to the business. Texas courts view family businesses as assets, which are subject to division during a divorce. As Texas is a community property state, any business that was acquired or created during the marriage will need to be divided in the event of a divorce. Today, we discuss how a family business could be divided during the divorce process and what you need to know about how business assets are handled in a Texas divorce.

How to Divide a Business During a Divorce

The first step is to determine if the business is community property. If your business was created before you were married, then this asset will be considered separate property and not subject to division during the divorce process. If you are claiming that the business is separate property, you will need to prove this to the court. It is best to consult with a seasoned attorney to collect evidence that will support this claim.

Next, let your lawyer know what kind of business you and your spouse share. Is your business a small company, large business, or corporation? In a contested divorce, it is important to obtain a busines valuation as it can be difficult to figure out a company’s actual worth unless it is a publicly held company (the value would then be based on its stock). During a business valuation, a comparative market analysis may be done to compare the company to others in tis industry to ascertain the company’s worth.

At this point, consider whether the business is jointly owned or if both spouses are just involved in the day-to-day operations. In many cases, it may prove impossible to divide a business in a manner that allows both individuals to continue to profit.

Options for Dividing a Family-Owned Business

The Texas family court system will not divide a business if it does not make sense, meaning if both spouses cannot profit off the new business structure created if the business were to be split. The court system does pose some other options though which include but are not limited to the following:

  • Award the business to one spouse and property and retirement accounts (or other assets) to the other
  • Sell the business and divide the proceeds
  • Joint ownership (this only works if the couple can be amicable and work together)

Business Division Rules and Limitations

It is important to note that there are rules and limitations to dividing a business. A professional company, such as a doctor’s office, cannot be owned by a non-licensed professional. Additionally, companies like franchises have ownership rules that must be kept in mind.

Can You Protect a Business from Divorce?

You can protect a business from being divided in a divorce with a prenuptial agreement. In this document, you and your spouse will cover how your assets will be divided in the event of a divorce. Therefore, in this way, you could protect your business from being divided or sold during a potential divorce. You could also execute a postnuptial agreement with similar terms if you did not create a prenuptial agreement before you got married.

Schedule a consultation with our firm online or via (512) 768-9737 to discuss your unique divorce situation.

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