When you’ve worked hard to build a business, the thought of your hard-fought gains being compromised by a divorce is sickening. What happens to the family business during a divorce largely depends upon when it was acquired and how the business is classified.
In Texas, property division between spouses is governed by the legal principle of community property. In its simplest description, community property is property acquired during the marriage, excluding gifts or inheritances. This means that business profit acquired during the marriage is considered to belong to both spouses even if one had little to no involvement in the day to day operations.
If one spouse owned the business prior to the marriage or it was inherited during the marriage, then the division becomes more complicated. Part of the business may be separate property, but the earnings since the marriage likely are community property. If there are other co-owners in the business in addition to the divorcing couple, the matter become even more complicated. While no one wants to think about divorce while love is in bloom, the unfolding of this scenario in later years make many wish they had asked for a pre-nuptial agreement. An experienced family law attorney is a good resource to help when business classification becomes entangled.
The Buy Out
If one spouse is more involved in the business than the other, this spouse may want to buy the other one out. In this case, a business appraiser will need to be hired to value the business. They’re not cheap, so an agreement to share the cost of the business appraiser is warranted. Some spouses each hire their own appraiser, but doing so will double the cost. If both spouses interview and by agreement select the appraiser, they can save money and both parties will feel their opinions and concerns will be adequately addressed.
If the spouse buying half of the business doesn’t have the financial resources to do so, agreed upon assets can be exchanged in lieu of cash.
If both spouses want the business, the situation can become contentious. Generally, one spouse will have a more vested interest in the business by virtue of that spouse’s investment of time and money and determining a fair and just means of dividing the business may become clearer as the details are explored.
In some rare instances, dual ownership may be a workable solution even after the divorce. While this might sound like an impossible or improbable option, it might be feasible when spouses divorce amicably and both have been heavily involved in the business with each bringing his or her own set of skills, complementing the skills of the other spouse. Of course, dual ownership will mean spending a lot of time with the person from whom you’re getting divorced. It might not be an option for most, but it has been done, and done successfully. And presumably you’ll be able to save on the cost of an appraiser.
Sell and Divide
Selling the company and dividing the proceeds is a pretty straightforward option, but an independent appraiser will be needed to value the company. The problem with this scenario is that there is no guaranteed timetable on the sale of a business. If it takes a long time to sell, you might be spending more time with your ex-spouse than you’d like.
If you have questions about divorce and how it will affect the family business, contact the law offices of Mary Ann Beaty. She’s a board-certified family law attorney who’s been practicing for over 40 years.