Owning your own business is great way to achieve financial independence and increase your earning capacity. While there are risks to going out on your own, the knowledge that you are the one who determines the course that your professional life will take can be extremely liberating.
In the context of a divorce, if you are a business owner, there are special considerations that you must plan for and challenges that must be met to ensure your work's continued success and longevity.
The attorneys with the Law Office of Bryan Fagan, PLLC have represented business owners who are going through a divorce and wanted to share our thoughts about this subject with you all in today’s blog post.
Assessing a business in the context of a divorce
Most of the prior clients that I have worked with who also own businesses have concerns about whether or not their soon-to-be ex-spouse is going to be able to hold a portion of the business after the divorce.
A similar concern is whether or not you, as the business owner, will have to pay your spouse some amount of value that represents a “fair” share of your business. After all many people have heard that because Texas is a community property state that half of what you own belongs to your spouse and vice versa. Is your business going to be treated in the same way?
Your business will be treated like any other piece of property involved in a divorce. The extent to which it will be divided depends upon whether or not it is community property (jointly owned by you and your spouse) or your separate property (owned by you before your marriage and considered to be yours and yours alone). The business can also be a combination of separate and community property known as quasi-community property.
The other consideration that you and your spouse will need to determine and work out is the value of the business itself. In pure dollars and cents, what is the business worth on the open market? Taking into consideration the income derived from the business as well as its assets, debts, liabilities, and future income earning potential.
How is a business determined to be a community or separate property?
The key to determining whether or not a business is part of the community estate is the time at which your business was created- before the marriage or during your marriage. In this way, the analysis is exactly like any other piece of property that is being considered in your divorce’s division of property.
If your business was created before the time that you got married then the value of the business at the time of your marriage as well as the amount of time between the start of your business and the beginning of your marriage. Income from a piece of your separate property is considered to be community property.
You may own a family-run business that has been handed down to you through generations of previous owners within your family. Just as if you owned a percentage of the business as in a business partnership an analysis will be done to determine your specific ownership percentage
How your business could be divided in a divorce
If your business is determined to be part of the community estate then it will be divided in some manner during your divorce. As we touched on briefly earlier in this blog post one way your business may be divided is to not touch the business itself but to compensate your spouse for their share of it in the community estate.
If you are the spouse who works in the business and derives your income from it then it wouldn’t make too much sense to give ownership to your spouse who has little to no involvement in the business.
Rather, your soon-to-be ex-spouse will be paid a percentage of the value whatever that is determined to be. The alternative to payment based on percentage ownership in the business would be to look at the martial estate and then award a piece of property worth the same or a similar amount to your spouse.
The second way that your business could be divided in divorce is to sell the business to a buyer and then for you and your spouse to split the proceeds of the sale. This occurs often in situations where you and your spouse cannot agree to a method to divide up the business before trial. In situations where the business is profitable but does not make enough money to properly compensate the spouse who will not keep ownership of it.
The last, and in my opinion least desirable, method of dividing up your business in a divorce would be having you and your spouse continue to own the business together after the divorce is finalized. The thought of two people who couldn’t live together any longer continuing to own a business does not sound like a good idea, but in some instances, it can make sense.
If a judge determines that you and your spouse both want to continue to have an ownership stake in the business and have shown that each of you is needed to run the business then this option is on the table. Finally, if you and your spouse have shown the ability to work together amicably a judge would be more likely to order this type of arrangement.
Questions about dividing a business up during divorce? Contact the Law Office of Bryan Fagan, PLLC
If you have concerns about your own business and are considering divorce then you are not alone. However, having concerns does not mean that you are taking active steps to protect your and your family’s interests.
A free-of-charge consultation with an attorney from the Law Office of Bryan Fagan, PLLC can help you to understand what the issues are in your divorce and how you can prepare for them. Please do not hesitate to contact us today.
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Law Office of Bryan Fagan, PLLC | Business Owner Divorce Lawyer
The Law Office of Bryan Fagan, PLLC routinely handles matters that affect children and families. If you have questions regarding Business Owner Divorce Lawyer, it's important to speak with a Business Owner Divorce right away to protect your rights.
A Business Owner Divorce Lawyer is skilled at listening to your goals during this trying process and developing a strategy to meet those goals. Contact the Law Office of Bryan Fagan, PLLC by calling (281) 810-9760 or submit your contact information in our online form. The Law Office of Bryan Fagan, PLLC handles Divorce cases in Spring, Texas, Cypress, Spring, Klein, Humble, Kingwood, Tomball, The Woodlands, Houston, the FM 1960 area, or surrounding areas, including Harris County, Montgomery County, Liberty County, Chambers County, Galveston County, Brazoria County, Fort Bend County and Waller County.