The Love DuCote Law Firm LLC Legal Blog

Factors that affect how divorce may impact your business

Texas business owners who begin contemplating divorce often have concerns about the ways in which property division can impact their company. It can be helpful to have an overview of your options for keeping your business running.

Every situation has its unique aspects, so general rules and guidelines may work very differently in various cases. 

Whether your business is community property

Like any other asset, a business may be subject to division if it forms part of the community estate. Generally, a business may be separate property if you started it before the marriage and community property if you started it afterward. However, even if a business remains separate property, the income you receive from it during the marriage joins the community estate.

Additionally, if your spouse contributes substantially to the development of your business, it may become community property even if you created it before the marriage. In some situations, parts of the business may be marital property while others remain separate.

How much your business is worth

If any part of your business constitutes community property, you will need a comprehensive and accurate valuation. Your business’s value includes the balance of its current assets and inventory. It also includes less tangible but at least equally important assets such as goodwill, client lists and projected growth. Valuation takes into account the type of business and developments in the markets it depends on.

Which approach to division you take

The most effective way to keep your business is to buy out your spouse’s share. Sometimes, a spouse may receive another asset of equivalent value from the marital estate. This method can be easier if your contributions to and involvement in the business significantly outweigh those of your spouse.

When both you and your spouse have been working in the business, you may try to maintain this working relationship after divorce. This tends to work for amicable divorces with no bad feelings. Otherwise, the strong negative emotions that abound in many divorces can adversely affect the company.

Finally, you and your spouse may decide to sell the business and divide the proceeds. Courts tend to order this solution in cases where the spouses cannot agree on how they want to handle the business.

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