If you own a business and are facing divorce in Texas, protecting your ownership interest is likely your most urgent concern. The answer to what happens to your business depends on several factors — and the outcome can vary significantly depending on how well you prepare.
Texas Is a Community Property State
Texas law treats assets acquired during a marriage as community property, subject to division in a divorce. This includes business interests. If you founded or acquired your business after your wedding date, your spouse may have a claim to a portion of its value – even if they had no involvement in running it.
If your business existed before the marriage, the original value may qualify as your separate property. However, any growth or appreciation that occurred during the marriage due to your labor and effort — or the investment of marital funds — may be considered community property. This distinction is where most business divorce disputes are won or lost.
How Is a Business Actually Valued?
Before anything can be divided, the business must be valued. Texas courts generally recognize three approaches:
- the income approach, which estimates value based on earning potential;
- the market approach, which compares the business to similar companies that have sold
- the asset approach, which calculates net asset value
The methodology chosen can significantly affect the outcome, which is why each spouse often retains their own valuation expert.
Courts will also examine whether any portion of the business’s value constitutes personal goodwill — reputation and relationships tied directly to you as an individual – versus enterprise goodwill that would survive under new ownership. In Texas, personal goodwill is generally treated as separate property.
What Can You Do to Protect Your Business?
The most effective protections are put in place before divorce proceedings begin – a prenuptial or postnuptial agreement that clearly defines the business as separate property is the strongest safeguard available. During divorce, working with an experienced attorney and a qualified business appraiser gives you the best opportunity to limit your spouse’s claim to what is legally and fairly theirs.
At Law Thompson, P.C., Travis Thompson has decades of experience protecting business owners’ interests in complex Texas divorces. Contact our Houston office to schedule a confidential consultation.