Entrepreneurs and Divorce Part 1: Who Owns the Family Business?

 Posted on April 06, 2014 in Family Businesses

A big task during a divorce proceeding is determining what property is separate property (belonging to a particular spouse) and what property is marital property (to be divided in the divorce). Marital property is all property, other than separate property, acquired during the marriage until the date of separation. Marital property may include the family home, the family car, or a retirement account. Separate property is all property acquired by either spouse before the marriage, or all property acquired during the marriage by inheritance or gift. Separate property may include an inheritance from a parent or a cash gift from a friend.

 For some types of property, determining whether it is marital property or separate property can be challenging. One piece of property of particular concern to many divorcing couples is the family business.  Where the Family Business is Jointly Owned or Separately Owned In some instances, the court may determine that the family business is marital property (i.e., owned by both spouses). For example, a business that was started during the marriage, and with funds acquired during the marriage, may be considered marital property. During a divorce, the court will determine a value for the business and divide that value between the divorcing spouses. Where the court determines that a business is owned by just one of the divorcing spouses, the court will award the business to that divorcing spouse.  Where the Family Business is Part Separate Property and Part Marital Property Determining what happens to the family business can get complicated, however, when the business is a mixture of both separate property and marital property. For example, instances when a business may be part marital property and part separate property include:

• Income received from a business - Even if a business is considered the separate property of one of the spouses, income received from the business may be considered marital property, provided such income is attributable to the personal efforts of either spouse. For example, if both spouses work at the business producing income, that income will be considered marital property, even though the business is the separate property of just one of the spouses.
• Increase in value of the business - Even if the business is considered the separate property of one of the spouses, an increase in the value of the business during the marriage may be marital property, provided that such increase was due to the personal efforts of either spouse. For example, if one spouse owns the business before marriage, but either spouse's personal efforts cause the business to substantially increase in value during the marriage, the increase in value may be marital property. Such personal efforts may include labor, effort, inventiveness, skill, creativity, or marketing activity applied to the business.

Attorney Help If you are considering divorce and have questions about a business owned by either you or your divorcing spouse, it is vital that you contact a skilled Austin family law attorney. The attorneys at our firm are dedicated to helping individuals involved in divorce proceedings understand their rights and reach the outcomes they desire. Contact us today to schedule your consultation.