When someone decides to become an entrepreneur, dividing a business is likely the last thing on their mind. Of course, the divorce process is likely the last thing on someone’s mind when they get married as well. Unfortunately, marital dissolution can thrust both of these issues to the forefront of a person’s life. Property division is a common and necessary process during any Texas divorce, but things can become more complicated when business assets are involved. If you find yourself in such a situation and are unsure how to move forward, a business owner divorce lawyer in Houston may be able to help.
At Von Dohlen Law Firm, we pride ourselves on simplifying family law issues for everyone involved. There’s no doubt that having a company’s assets as part of the marital estate complicates matters, but this doesn’t mean your divorce has to get messy. Texas is very clear on certain matters that involve business ownership, and when ownership isn’t so clear, there are ways to figure out who gets what during the divorce process. However, it’s still a complex process. This means you’d be well-served to seek out legal representation for your divorce case. Contact Von Dohlen Law Firm today to schedule a consultation.
- 1 Is a Business Community Property or Separate Property?
- 2 Can Businesses Convert From Separate to Community Property?
- 3 How Do Courts Divide a Business During the Divorce Process?
- 4 Can You Avoid a Litigated Divorce for Business Assets?
- 5 Contact a Business Owner Divorce Lawyer in Houston Today
- 6 Business Divorce Questions
Is a Business Community Property or Separate Property?
The biggest issue to consider during a divorce involving business assets is whether a company is community property or separate property obtained outside of the marriage. On a basic level, this is a simple thing to discern. Texas law dictates that any properties accrued during the course of a marriage are considered marital property. This means both spouses have a rightful claim over these assets, and their value will need to be split equally during a divorce. However, courts will often only aim to provide an equitable share during a no-fault divorce. If fault is claimed and a judge agrees, the at-fault party may receive less of the community property.
In a no-fault divorce — or whenever a judge decides to split everything equally — community vs separate property becomes integral. If you started your company during your marriage, it’s marital property. If you started the business prior to your marriage, after divorce proceedings began, or you received the company as a gift or inheritance, it will likely be seen as separate property. This simplifies things greatly since separate assets are not usually eligible for property division. This is great news for business owners since they won’t have to go through the complicated process of splitting a company.
If the company is considered community property, however, things can start to get more difficult. Big questions have to be answered to decide how a marital estate can be divided when a dynamic business is involved. For instance, what’s the true fair market value of a company that’s still growing? A judge may decide to grant ownership of the business to one spouse while giving other assets of equal value to the other spouse. Is it fair for a marital asset to be handed to a single individual, though, if it’s quickly increasing in value? This is just one of the many complex issues that a business owner divorce attorney in Houston can help you navigate.
Can Businesses Convert From Separate to Community Property?
If your business assets predate your marriage, you may think you’re in the clear. This is a fairly solid assumption for business owners, and in such cases, you may not have to worry about your company’s future. Unfortunately, there are instances where a company can shift from separate to community property. This often happens via an agreement between spouses after they’re married. Of course, it’s also possible for a company to become community property without you even realizing it.
This can happen when assets are commingled. At some point, it could become difficult to ascertain what qualifies as separate property or part of the marital estate. This is true even if there is no joint ownership with your spouse. A common issue that arises is when community property — such as a bank account — is used to support separate properties. For instance, you may use the money earned during the marriage to purchase company assets or buy stock options and other investments in the business.
In such instances, a spouse may be able to simply seek reimbursement for the community property that was used to further their spouse’s interest in the company. If this all sounds complicated, that’s because it is. The divorce process is often simpler for smaller businesses, but even upstarts can create potential hurdles during these proceedings. This is why you should at least sit down for a one-on-one consultation with a Houston divorce attorney prior to moving forward.
How Do Courts Divide a Business During the Divorce Process?
When a company is considered community property, it doesn’t matter who the business owners are. Even if an individual has a business partner that isn’t their spouse, the divorce decree will still need to equally divide all marital assets equally. In court, this will start with a comprehensive business valuation. If a company is worth $1 million and all other non-business assets are worth $1 million, property division could be as simple as granting one spouse the company and their former partner everything else. Of course, this is a basic example that doesn’t often play out in court.
Still, this method of division is common. The business assets could be given entirely to one spouse while the other receives fair financial compensation. There are other instances where the business may simply be sold and the profits divided between the former partners. This isn’t as common as the previously mentioned approach, but it is an option. You may also find yourself in a situation where joint business owners divorce but maintain equal rights to the company after the marriage. If you find yourself in this situation, however, it’s likely because you agreed to it. A judge is unlikely to force two people to work together when they don’t want to.
The simple fact is that a business entity adds an additional layer of complexity to any divorce. And since it’s handled as property division, things like spousal support and other financial issues may not affect it at all. When a company is considered separate property, your divorce proceeding may go on without a hitch. If not, matters such as business valuations, hiring a forensic accountant, and various other financial requirements may be in your future. Regardless of the underlying circumstances, a business owner divorce lawyer in Houston can help you figure out the best way to proceed.
Can You Avoid a Litigated Divorce for Business Assets?
When we sit down with potential clients at our law office, they’re often terrified of what they’ll face in court. Perhaps they spent years building a company and are now worried about how a judge will divide their assets. Even if a company is small and the entire business value rests in physical assets (e.g., farm equipment, fleet vehicles, etc.), it can be hard to predict how things will play out in court. Fortunately, you don’t have to let a judge make these important decisions for you. It’s possible for business owners and their spouses to reach a positive outcome without the courts having any input at all.
That’s because an uncontested divorce is always an option. Family law works much more simply when the parties involved can work together. Perhaps your spouse is willing to sell their business interests as long as you account for any expected future income. Maybe you’re okay with taking full ownership of your marital home and handing over complete control of the company. Regardless of the situation, compromise is often the best approach. Dividing the marital assets owned between the two of you doesn’t have to drag out in court.
Of course, there’s a chance that two individuals cannot reach an agreement between themselves. Perhaps one spouse contributed far more to the company’s success than the other. Maybe matters are extremely complex due to the existence of executive stock, partnership agreements, and other corporate concerns. Even when former partners cannot create an arrangement on their own, a divorce mediation attorney in Houston may be able to help. Mediators understand the nuances of Texas law and can guide negotiations in a way to make them more fruitful for everyone involved. There’s no need to make litigation your first resort.
Contact a Business Owner Divorce Lawyer in Houston Today
There are times when dividing marital property is a simple process thanks to Texas community property laws. This can even be true when a business is involved as separate property. Unfortunately, things can become far more complex when a company is considered community property or a designation isn’t clear. This is why business owners should seek out the help of a Houston family law attorney prior to making any major decisions. It’s important for you to understand your rights if you want a fair outcome, and a skilled legal professional can help in this endeavor.
At Von Dohlen Law Firm, we understand the difficulties that can arise during even the most basic divorce case — and we’ve seen how complicated things can become when business assets are involved. With competent legal representation, though, it’s possible to simplify the process. Community assets don’t necessarily need to be split “down the middle,” so don’t think your business has to fail simply because your marriage isn’t working. Contact us today by calling (713) 844-8396 to schedule a consultation with a business owner divorce lawyer in Houston. We’re ready to advocate for your best interests and help you seek a fair and equitable solution.
Business Divorce Questions
Is My Wife Entitled to Half My Business if We Divorce in Texas?
In Texas, which is a community property state, the assets acquired during the marriage are generally considered community property and are therefore subject to division upon divorce. However, this doesn’t automatically mean your wife is entitled to half of your business. The division of assets, including a business, depends on various factors, such as whether the business was started before or during the marriage, the contribution of each spouse to the business, and any prenuptial or postnuptial agreements in place. It’s essential to have a detailed evaluation of these factors to determine how a business will be divided in a divorce.
How Is A Small Business Valued in a Texas Divorce?
Valuing a small business in a Texas divorce typically involves assessing its market value, which can be complex. Several methods can be used, such as income-based approaches, market-based approaches, or asset-based approaches. The chosen method depends on the nature of the business, its financial history, and future earnings potential. Often, both parties will hire professional business appraisers to provide an accurate and fair valuation of the business for the divorce proceedings.
How Is An LLC Treated in A Divorce in Texas?
An LLC (Limited Liability Company) is treated similarly to other businesses in a Texas divorce. The court will look at when the LLC was formed (before or during the marriage), the contributions of each spouse to the LLC, and the value of the LLC. The ownership interest in the LLC may be considered community property if it was formed or developed during the marriage. The division of an LLC can be particularly complex if there are other partners or members involved, and it may require specific legal arrangements to determine each party’s share without disrupting the business operations.
For specific legal advice and a thorough understanding of how these laws apply to your situation, it’s recommended to consult directly with a divorce attorney experienced in handling business-related issues in Texas.