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Protect Your Business And Offset Its Equity In A Houston Divorce

Last updated on June 5, 2024

A divorce reaches into every corner of your life, including your business interests. Under Texas divorce law, business owners must account for the spousal share of a closely held business in the division of assets. This can be a knotty problem because it inevitably has an impact on business partners and the ongoing enterprise.

At Law Thompson, P.C., we regularly represent business owners and the spouses of business owners in divorce proceedings. Located in Houston, we also represent couples who co-own a business. Founding attorney Travis Thompson is a board-certified divorce attorney. He has the experience, knowledge and resources to help you reach an accurate valuation of a business. He can also advocate on your behalf for a fair and practical reimbursement of that business. Throughout the process, he will strive to keep any disruptions to the business itself at a minimum.

Texas Divorce: Evaluating Business Ownership Interest

All wealth accumulated during a couple’s marriage is considered community property. This includes an ownership stake in a small business, partnership or medical association. There are three stages to this process:

  • Determining the dollar value of a business: The first step is to determine the dollar value of the business interest for the purposes of asset distribution. Ideally, the parties will agree to abide by the findings of one business valuation specialist, but sometimes litigation is required if there are competing appraisals.
  • Determining the spousal share: The next step is to determine the spousal share. Did the business predate the marriage, and if so, how much has the valuation been appreciated? Did the spouse contribute to their partner earning a medical degree or sacrifice their own career to support the business? In other words, the spousal interest may be more than or less than a 50% share.
  • Determining compensation: Lastly, if the business will continue, the spouse must be compensated accordingly. This could be a cash settlement or a structured buyout over time. It could be an offset of other assets, such as the marital home or retirement accounts. Attorney Travis Thompson is well-versed in trade-offs and other creative solutions to account for the ownership stake in the business.

We have represented doctors, other professionals and business owners across many industries to assess their ownership interests for purposes of divorce. The division of property in a divorce can be complicated and contentious. An experienced divorce lawyer who will advocate for your rights and interests can be invaluable.

Frequently Asked Questions About Business Valuation In A Divorce

If you are navigating a divorce that involves a small business, we know that you probably have a lot of questions. Here, our board-certified divorce attorney answers some of the most common questions. For answers to your specific questions, we offer a no-obligation initial consultation appointment.

In a Texas divorce, is a business considered a community or separate property?

When you go through a divorce in Texas, your business falls into one of two categories: community property or separate property. A business is typically considered community property if you started or acquired it during the marriage. This means it may be subject to division in the divorce.

However, if you owned the business before the marriage or received it as a gift or inheritance, it is generally treated as separate property and not divided. However, any income received from that business during the duration of the marriage will be considered community property and must be divided according to the state’s community property laws. The distinction between marital and separate property can become complex, so consulting with a lawyer can help clarify the status of your business in a divorce.

What are the different methods for evaluating a business in the context of a Texas divorce?

Valuing a business in a Texas divorce requires a fair and accurate assessment of the business and its assets. There are several different acceptable methods of valuing a business, including:

  • The market approach: A market approach compares the business to similar companies that have been sold recently.
  • The income approach: The income approach looks at the business’s potential earnings, factoring in revenue, expenses and growth prospects.
  • The asset approach: Lastly, the asset approach calculates the total value of the business’s assets minus its liabilities.

A seasoned divorce attorney who has experience with business valuation can further explain the differences in these methods and help you determine which is most appropriate for your situation.

What happens if my spouse and I cannot agree on the value of the business or how to divide it?

If you and your spouse disagree on the value or division of your business in a Texas divorce, there are several paths you can take. Mediation provides divorcing couples with an alternative method for resolving their disputes. It helps parties reach a settlement in a divorce. With the help of a neutral third party, the goal is to reach a mutually acceptable agreement. If mediation fails, litigation is an alternative. Both parties present evidence supporting their opinion and a judge makes the final decision. It’s essential to work with an experienced divorce lawyer who understands the intricacies of business valuation and division in a divorce to protect your interests during this process.

Protect Your Marital Interests In A Business

Whether you built a successful business or medical practice or were married to someone who did, that business represents a significant financial stake in your divorce. There are important legal questions to sort out.

Law Thompson, P.C., represents men and women in divorce proceedings in Harris, Montgomery and Fort Bend counties. Call our Houston law office at 281-369-8665 or email us to arrange a consultation to discuss your goals and concerns.