Building a business on your own is a significant challenge. However, small business ownership offers the opportunity to benefit your family tremendously. Additionally, creating a small business can help your community and those around you. Indeed, small business ownership is at the center of the American Dream. Those of us who are employed by or own small businesses see the benefits of small businesses every day. Losing half your business in a Texas divorce is not in your plan, needless to say.
In a Texas divorce, your small business can become the focus of the case. Are you someone who is in the process of a divorce? If so, then today’s blog post from the Law Office of Bryan Fagan is for you. We are going to spend time discussing what it means to go through a divorce as a small business owner. While owning a business is certainly difficult it is also well worth your effort. As a result, you need to understand the potential consequences to your business and family by going through a divorce.
Any questions you have about the material discussed in this blog post can be addressed to one of the attorneys with the Law Office of Bryan Fagan. Our experienced family law attorneys offer free of charge consultations six days a week. That means no matter what your circumstances our attorneys can talk to you about your case. With that said, let’s get into Texas divorces from the perspective of a business owner.
How does the state of Texas treat marital property in a divorce?
Before we begin discussing the subject of small business ownership, we need to first go through and talk about how state law treats marital property in a divorce. Texas adheres to principles of community property when considering marital property. Community property principles are the exception in the United States rather than the norm. If you are from another state and have lived in Texas for only a short period this may be something that you are unaware of.
Community property is, essentially, any property acquired during your marriage. In this sense, property means both physical property as well as intangible property like investments and retirement income. Additionally, wages, salary, and tips from your job also count as community property. Importantly, a small business can also count as community property. This matters a great deal because community property is subject to division in a Texas divorce.
Compare this to separate property. You and your spouse likely own separate property, as well. Separate property is any property owned by either you or your spouse before your marriage. Additionally, property acquired during the marriage either by gift or inheritance also counts as separate property. These are items that a judge cannot divide in your divorce.
Community property ownership of a small business
Now that we understand more about marital property law in Texas, we can discuss in greater detail how small businesses are handled. If your business was created during your marriage, then it is likely to be classified as community property. However, as I’m sure you can see, dividing a small business is more complicated than dividing the community property interest in your home or any other significant asset.
We will discuss shortly how the value of your small business will inform how you and your spouse negotiate the division of your business. Additionally, whether your spouse took part in any management of the business will also likely impact whether he or she is interested in receiving a portion of the business in the divorce. Finally, the profitability of the business and your enjoyment of operating the business will also be a major part of how you treat the business in your divorce case.
With all these questions in mind, it is reasonable to have concerns about the future of your business and family. This is where working alongside the attorneys at the Law Office of Bryan Fagan can pay major dividends. Our attorneys understand the stresses and anxieties associated with small business ownership. We know that becoming involved in a divorce can greatly exacerbate those concerns. Why not reach out to our office today for a free-of-charge consultation? Doing so can allow your family and you to gain Peace of Mind during any otherwise troubling time.
What is a “just and right” division of community property?
One of the great misnomers about Texas property division cases relates to how the property is divided. Specifically, there is a thought that property divided in Texas divorces must be done evenly. Meaning that property is essentially divided “50/50” in all cases. While a somewhat even division of property is certainly possible in your case it does not have to be that way.
First, as we just learned only community property may be divided in a Texas divorce. Texas family courts have no authority to divide separate property owned by you or your spouse. Depending upon when your business was started it may not even be the case that it is subject to division in the divorce. Rather, your business may be separate property and thus not divisible by a family court judge.
However, for the sake of argument and today’s blog post we are going to presume that your business is community property. Thus, a just and right division of the business will become an issue. Bear in mind that a just and right division of property means that a judge considers a range of factors and circumstances when doing so. In this way, a court attempts to divide property as equitably as possible based on the circumstances of you and your spouse.
Which factors are most important in the just and right division of a small business?
The specific financial circumstances of you and your spouse will both be considered in the divorce. First, each of your abilities to earn a living for yourselves must be considered. For example, let’s suppose that you are a small business owner. You operate a small company that builds websites for local law firms. Business has been good, and you have a great deal of room for growth in the company. As a result, your financial circumstances are quite favorable.
On the other hand, your spouse is a stay-at-home mother. She did not complete her college degree because she chose to work to allow you to finish your graduate school so that you could open your business. Additionally, once the business started to expand, she chose to stay home to take care of the home and family. While nothing is stopping her from completing her college education the reality is her circumstances are not as favorable.
This is just one of the types of analysis a judge would perform when determining how to divide community property like a small business. Additional factors include each spouse’s health, each of your ages, and your prospects for future financial success. All these factors are considered by a court when determining how if at all, to divide the small business.
Separate property business- what to know when it comes to property division
Let’s say that you own a business that you began over ten years ago. Since you and your husband have only been married for seven years it is safe to say that the business is separate property. Based on the information we have already talked about today you would assume that this business cannot be divided in the divorce. However, the actual circumstances associated with how your business is handled are more complex than this.
Consider that even if your business is separate property there may be elements of the business which are community owned. The growth in the business, as far as value is concerned, maybe divisible in the divorce. That is assuming the growth in the business occurred during the marriage. Couple this with any investments of community income into the business and there are divisible portions of the business even if it is separate property.
As you can see, what may appear to be a simple discussion of community property ends up being anything but. Getting confused or caught up in these details is not hard to do. As a result, working alongside an experienced family law attorney can help you tremendously. Sorting through the complexities of Texas family law is one area where an attorney enhances your chances at success.
Determining the value of a business in your divorce
A discussion of your small business requires a determination of its value. Even if the small business is not eligible for division in the divorce you need to know the value of the business. Recall that the value of your community and separate estates will help inform how property is divided overall. Therefore, the value of your business is important to determining property division.
When it comes to valuing your small business there are a range of issues for you to consider. We are accustomed to the values of real estate and homes being determined somewhat easily. Part of the reason for this is that homes are so abundant in number. Everywhere you go there are homes of various sizes and types. As a result, there are plenty of homes to compare to yours. That helps when it comes to determining the value of your home.
However, determining the value of a business is more complex. For one, there are fewer businesses than there are homes in your area. On top of that, there are even fewer businesses that operate in the same area of the economy as yours. With that in mind, determining the value of your small business comes with a range of additional challenges. Fortunately, business appraisers exist who can help you and your spouse determine the value.
What future do you want for your business?
Ultimately, it is unlikely that your business will be turned over to your spouse as far as ownership is concerned. If you both work in the business and want to continue doing so you will need to decide how to go about continued ownership. Who wants the business more? Which one of you is better equipped to run the business without the other? Is the business profitable enough to even continue with? These questions need to be answered before determining how to divide the business, if at all.
Many people see a divorce as an opportunity to make changes in life. One of the significant changes you may experience in your divorce relates to your business. Is the business in your long-term planning? What direction do you see your business going in? Who is employed by your business other than you? These are additional questions that you need to ask yourself.
Keep in mind that factors like goodwill associated with the business, your client list, inventory, and real estate are factors included in the value of your business. A business appraiser can look at your past few years of sales and determine the direction your company is headed. A full and open evaluation of the business is necessary to produce a fair representation for property division purposes.
Working with an attorney helps you find creative solutions to property division questions
An attorney with the Law Office of Bryan Fagan offers you advantages in the courtroom. We can also help with finding creative solutions at the negotiating table, as well. The attorneys with our office have walked alongside many families in your position before. Owning a business means taking care of the business within your divorce. Many people wander into a divorce. However, it is difficult to wander out of a divorce without having accomplished anything meaningful.
Instead, you need to have a plan for accomplishing goals in your case. Reading about small business divorces is a great place to start. However, it is also important to gain a specific understanding of your circumstances. For that, consider reaching out to the Law Office of Bryan Fagan. Our attorneys would be glad to meet with you for a free-of-charge consultation. This is where you can gain a perspective on your divorce case.
When a divorce begins it is understandable to have your mind in multiple places at once. One of the factors that is worth discussing relates to managing your business during the divorce. The last thing you want to see happen is for your business to lose momentum because your attention is diverted towards the divorce. An attorney helps you to maintain focus in all the different areas of your life- including a divorce.
What other areas of your finances are involved in your community estate?
Of course, there are other areas of your life involved in the divorce besides your business. Once the value of your business is ascertained it is added to the value of your community estate overall. Retirement funds, bank accounts, investments, and real estate may all be part of your community estate.
It can feel like your business is the only part of your divorce it is a part of the whole. Business owners like yourself need to be prepared to negotiate based on several issues. For one, where do you prioritize your business on the list of community assets? Is it the most important part of your estate? Would you be willing to divide your community estate in a way that allows your spouse more assets in favor of you keeping the business?
Without a doubt, your small business needs to be prioritized in your divorce. If nothing else, it employs people and creates an income for you. In the short term, these are all relevant to your ability to keep your head above water. Losing track of important subjects related to the business can put you in a messy situation. Understanding the value of your business and how it fits into a division of your community estate is a great place to start this analysis.
Final thoughts on losing half your business in a Texas divorce
When you are faced with a challenge in your divorce it is easy to run in the other direction. Avoid the problem and it will go away- this is the faulty thinking of many spouses. However, it is not recommended for you. Additionally, it certainly will not help you to avoid issues or solve problems. Instead, a more practical, direct approach to the challenges in your divorce is advisable.
The attorneys with the Law Office of Bryan Fagan thank you for choosing to spend part of your day with us here. Our blog is a great place for you to learn about all sorts of Texas family law subject matter. Any questions you have about today’s blog post can be addressed to one of our experienced family law attorneys. A free-of-charge consultation is just what you need to jump-start your divorce planning.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
The attorneys with the Law Office of Bryan Fagan offer free of charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas family law. Before signing a document or negotiating on a subject you do not know well, contact our office. We look forward to the opportunity of serving you during an important part of your life. The Law Office of Bryan Fagan is on your side.
Evan Hochschild was raised in Houston, TX and graduated from Cypress Creek High School. He went on to graduate from Southwestern University in Georgetown, TX with an undergraduate degree in Political Science. While in college, Evan was a four-year letterman on the Cross Country team.
Following in the footsteps of his grandfather and uncle before him, Evan attended law school after he completed in his undergraduate studies. He graduated from St. Mary’s University School of Law and has practiced in a variety of areas in the law- including family law.
Mr. Hochschild is guided by principles which place the interests of clients first. Additionally, Evan seeks to provide information and support for his clients with the heart of a teacher.
Evan and his wife have four small children together. He enjoys afternoons out and about with his family, teaching Sunday school at his church and exercising. A veteran attorney of fourteen years, Mr. Hochschild excels in communicating complex ideas in family law simply and directly.
