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Ways to divide a business in a Texas divorce

On Behalf of | Nov 6, 2023 | Family Law

Property division can be challenging in any Texas divorce, but generally speaking, the more assets the married couple has, the more complicated the property division. In addition, some types of assets are much more difficult to divide than others.

Some of the most complex issues in property division involve business ownership.

Community property

The first step in property division is to figure out what’s separate property and what’s not. Under Texas’ community property law, almost all assets and debts acquired during the marriage are jointly owned by the spouses. For the most part, something one spouse acquired before the marriage is considered separate property, and therefore does not have to be divided in divorce.

However, separate property can easily be commingled with community property, particularly in a marriage of long duration. If so, these assets are subject to property division in divorce.

Is the business subject to property division?

Considering the community property laws, if you and/or your soon-to-be-ex-spouse own a business, your first step is to determine whether the business must be divided.

Even if one spouse owned the business before the marriage, it’s possible the other spouse acquired a property interest in it during the marriage by investing in it or contributing to the running of the business.

If you determine that the business is subject to division, you must determine what percentage is owned by each spouse. This may be done by the court or through negotiation between the parties.

Three options

If you determine that the business is subject to be divided, you have three general options:

  • Continue to co-own the business with your ex-spouse after the divorce.
  • Sell the business and divide the proceeds between the two of you.
  • One spouse continues to own the business and buys out the other’s share.

Each option has its advantages and disadvantages, and only you know which is best for your case.

Buying out

If you decide on the buyout option, you must determine how much the business is worth. For this, you will need the help of accredited professionals. To get a fair division, it may be best for each spouse to hire their own valuation experts.

Valuation professionals use several methods to determine the value of a business. For example, they consider a business’ revenue and its assets, and they will compare it to the selling price of similar-sized businesses that have recently changed hands in the area.

Once the valuation professionals have come up with a price, the spouse who wishes to keep the business can then buy out the other’s share.

Depending on the value of the business and the assets the parties have on hand, this buyout may be a somewhat complex matter by itself. In some cases, it may require taking out a loan. There can also be important tax consequences, so it’s important for both parties to consult with experienced professionals about their options.