One of the more complicated elements of divorce that family divorce attorneys must help their clients work through is the issue of family businesses and how they are handled.
Since Texas is a community property state and family businesses are often classified as marital property, divorce attorneys often see disagreements arising over how ownership of those companies is handled.
These tips from experienced divorce lawyers can help those involved in family businesses understand the legalities of how family businesses are handled in a divorce and how pre-planning can prevent disagreements in the event of a divorce.
Is The Business Separate or Community Property?
The first factor that family divorce attorneys must determine is whether an existing family business is separate property owned by one of the spouses or if it qualifies as community property that is owned by both of them.
In the former case, businesses that are separate property owned by one spouse remain so and are not subject to Texas’ community property laws.
In the latter case, when businesses fall under the definition of marital property, divorce attorneys must guide their clients through the process of dividing up the property in such a way that the family court considers it a fair and just dispersal.
Occasionally, a separately owned business may cross into community property.
How Is A Business That Is Community Property Separated?
When a family business is defined as marital property that is subject to division according to community property laws, divorce lawyers will follow a required process to do so as fairly as possible:
- Business Valuation - The business must be assigned a value so that it can be divided up fairly. Family divorce attorneys will refer to CPAs who specialize in business valuation to determine the value of the enterprise based on its type, assets, income generation, and other essential factors.
- Financial Interests of Spouses - After an accurate assessment of business value is determined, divorce attorneys and their clients will then consider each spouse’s financial interests in the business. The division of this property will depend on each spouse’s involvement in the company, both financially and physically, and any other contributions that were made to keep the business running and how they balance out with other elements of the family’s life.
- Dispersal Agreements - Finally after deciphering each spouse’s type and degree of involvement in the business and determining the amount of ownership each spouse has, divorce lawyers will help their clients come to some sort of transactional agreement to divide up the business. That can include anything from one spouse buying the other one out, liquidating the business and awarding the proceeds accordingly, trading off for ownership of other marital assets, or other creative financial arrangements. Some spouses may also continue to share the business with new ownership contracts drawn up based on the agreements made during their divorce.
How To Avoid Marital Business Ownership Disagreements
Since family businesses can become community property distribution nightmares in Texas, divorce attorneys often recommend resolving these issues before they become one.
One way is with a prenuptial agreement to define ownership and disposition of the business when it is brought into a marriage by an owning spouse.
Another option is to draft a postnuptial agreement with an experienced lawyer who can help the divorcing couple determine the fairest valuation and division of their business ahead of time while they are on good terms.
An Experienced Divorce Lawyer Can Help
When a divorce involves a family business, negotiations can become contentious.
The best solution is for spouses to hire a family divorce attorney who is experienced in business dispersals and also has access to proficient financial experts who can help.
Plan for the possibility of divorce with a knowledgeable divorce lawyer who can make sure each spouse comes away from the marriage with their fair share of the family business.
