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TX divorce lawyerBusiness interests are often an important consideration in a high net worth divorce. A family business can represent a significant source of income, and it is likely to be one of the most valuable assets owned by a married couple. Since business interests must be included along with other assets when dividing marital property between spouses, determining the value of a business is crucial for making sure all assets can be allocated fairly. In these cases, spouses should be sure to understand the methods that may be used when performing a business valuation.

Three Methods of Business Valuation

There are multiple different approaches that can be taken when determining a business’s value. Typically, they fall into the following categories:

  • Asset-based valuation - The simplest method of business valuation involves a calculation of the total value of the assets owned by a business. The business’s debts or liabilities are then subtracted from this total to determine the value of the company. While this approach can determine the cash value of the tangible assets owned by a business, it may not take other factors into account, such as the business’s goodwill in the community, its relationship with its customer base, and the value that an owner brings to the organization.
  • Income-based valuation - This approach can be used to obtain an idea of the income that a business will likely generate in the future and its potential growth over the next several years. Methods such as discounted cash flow can look at the business’s past earnings and projected future earnings, while also considering how these earnings may increase if they are reinvested in the business to promote growth. This approach will often provide a better understanding of how a business will increase in value, ensuring that spouses understand the benefits of retaining ownership of business interests.
  • Market value - Another method that may be used to determine a business’s value will look at recent sales of other similar businesses in the same geographic area. This can provide an idea of how much the spouses would be able to receive if they sold the company during their divorce. However, this method is not always completely accurate, since factors that affected the selling price of other businesses, such as poor management, may not apply to the business owned by the divorcing spouses.

In many cases, a combination of these approaches is used to place a monetary value on a business. Once spouses have a full understanding of the value of this and other assets, they can determine how to divide their marital property fairly. In some cases, one spouse may retain full ownership of a business, while the other receives other assets of a similar monetary value. Spouses may also decide to sell a business and divide the profits, or they may choose to continue to co-own a business after they complete their divorce.

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TX divorce lawyerIn the absence of a pre or postmarital agreement, a couple who has decided to divorce and who owns businesses will need to decide how those assets will be divided, which will also require an accurate business appraisal. These appraisals are conducted by experts, but it’s still important to carefully review them for accuracy. However, the technical language of these documents can make their review a difficult process, so if you are considering divorce and own one or more businesses, it is important to retain an experienced Austin, TX high asset divorce lawyer who can go over the appraisals with you and ensure that the terms of any property settlement agreements are fair.

Professional Standards

Before requesting a business valuation, it is important for divorcing couples to ensure that the appraiser is qualified to perform the analysis and has the proper credentials. There are three main professional associations that issue valuation standards for appraisers: the American Society of Appraisers, the American Society of Certified Public Accountants, and the National Society of Certified Valuation Analysts. Ensuring that your own appraiser has been credentialed by one of these groups is one of the first steps that a divorcing couple should take when seeking an appraisal.

Clarity and Thoroughness

Once a business valuation has been completed, the appraiser will create and submit a valuation report. Upon review, this report should be clear as to the purpose of the appraisal and include information about:

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TX high asset divorceOne of the things that sets many high asset divorces apart from other divorces is the ownership of business interests by one or both spouses. Owning these types of assets can make the property division portion of high asset divorces much more complex, so if you and your spouse have decided to get divorced and either one of you owns a business, it is important to contact an experienced high asset divorce attorney who can help protect your interests.

Do Not Delay

Dissolving a marriage can be a lengthy, costly, and emotional process, so it is not uncommon for many couples who decide to end their marriages to delay actually filing for divorce. While this can temporarily delay the potential difficulties that often come with divorce, it will not eliminate them and can actually end up complicating the divorce process itself. For instance, Texas is a community property state, which means that all of the assets acquired by a couple during the course of a marriage are subject to equitable division. This includes not only assets like real estate and personal possessions, but also any increase in their company’s revenue, profit, and income, so the longer a couple waits to dissolve their marriage, the more they may end up needing to divide during the property division process.

Keep Detailed Records

One of the best ways to ensure that any divorce-related property settlement agreement is fair is to provide the court with detailed business records. These records, including bank statements, invoices, contracts, and bills related to monthly expenses can help establish the value of the business in question, as well as its equipment and assets. Pay stubs and paychecks can also be used to establish income, which can play an important role in determining child support and alimony.

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TX divorce lawyerOne of the most difficult components of many high asset divorces involves the division of business assets. Although having a pre or postnuptial agreement can make this process much simpler, not all couples enter into these types of agreements, which means that either a court or the parties themselves will need to decide how any business interests will be split. To ensure that the division of your marital assets, including any business interests, is fair and equitable, please contact an experienced high asset divorce attorney who is well-versed in Texas law and can advise you accordingly.

Is There a Premarital Agreement?

If a couple entered into a premarital agreement and one of the parties already owned a business at the time, then the fate of that company in the event of divorce should have been included in the agreement. In these cases, how the business’ assets will be divided depends on the terms of the agreement, which could mean a number of different things. For instance, the parties might have previously agreed that the entire company would go to one spouse in the event of divorce, or that both would receive an equal share.

Just because a couple did not enter into a premarital agreement before getting hitched, does not mean that they are out of luck when it comes to dividing their business upon divorce, as married couples also have the option of entering into postnuptial agreements that account for these types of assets.

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TX divorce lawyerEven individuals who take great care when identifying, categorizing, and appraising assets during the divorce process, can overlook things that could impact their financial well-being down the road. This is especially common in cases where couples own particularly unique or valuable assets, such as a business interest, so if you fall under this category, it is important to consult with an experienced high asset divorce lawyer who can ensure that your interests are protected.

Protecting Your Business

Under Texas law, property and assets obtained by a couple before marriage are not considered marital property and so are not subject to division upon divorce. While this legal practice can be used as a form of protecting one’s assets, it should not be the only source of protection for those who own a business interest. This is largely due to the fact that even if a business was created before a person’s marriage, it could still be impacted by divorce, especially if the company is successful and growing and the other spouse had a hand in the business’s increased value. In these cases, the non-owner spouse could be awarded a portion of the increase, or appreciation, in value, which could be a considerable amount if the business owner was just starting out at the time of the marriage, and the business has since become successful.

Active Appreciation

The term active appreciation is used to describe any increase in value resulting from the actual effort of an individual, usually the business owner, to improve a company. When the parties involved in the business are married, but later decide to get divorced, the court could require the individuals to divide the increase in value, but only if the non-owner spouse helped improve the business through:

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TX divorce lawyerDissolving a marriage is complicated and often has the potential of becoming an emotional and difficult process. Those risks tend to be especially high for those who are involved in a high asset divorce and own unique assets, such as a business, as they could be required to sell the company, or buy out their soon to be ex-spouse’s interest, both of which could cause significant financial strain. Obtaining an accurate business valuation is critical to ensuring that any property settlement entered into by a couple is fair, so if you or your spouse own a business and are considering divorce, it is critical to speak with an experienced high asset divorce attorney who can ensure that your assets are properly appraised.

Determining a Company’s Value

Hiring an expert in business appraisals is critical when it comes to placing a value on a company. This type of appraisal is complicated, as it requires a prediction of the potential future value of the company, as well as its past and current value. During this analysis, business appraisers will take a number of factors into account, including the company’s:

  • Expenses;
  • Earning history;
  • Earning capacity;
  • Dividend-paying capacity; and
  • Stock prices.

Depending on the method of valuation used, an appraiser may also be required to evaluate the price of company equipment and other tangible assets, such as:

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Texas divorce lawyerAlthough most people associate divorce with child custody issues, alimony, or deciding who will keep the marital home, many couples who jointly own a family business must also divide the company itself. This requires an in-depth valuation of the business, as well as a determination of whether the company is actually jointly owned. Furthermore, once a couple’s business interests have been appraised and the parties have agreed to a settlement, the business’s actual division will need to take place, which can be difficult, especially for couples with an acrimonious relationship. For help determining the value of your own business and coming to a settlement agreement with your spouse, please contact one of our experienced high asset divorce attorneys today.

Initial Considerations

Before deciding on how to divide a business during divorce proceedings, the couple in question must consider a variety of factors, including:

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Texas high asset divorce attorney, Texas divorce laws, Texas complex litigation lawyer, The more assets you and your spouse have, the more complicated your divorce will be. Trying to manage the emotions as well as the future financial impact of the breakup of your marriage is a big job. Before you get too far into discussion about how to split up the property or how support should be paid, make sure you don't overlook these common issues in high-asset divorces.

IRS and Asset Transfer

In a typical divorce, the transfer of ownership of property or assets from one spouse to the other does not create a taxable event. The IRS is not going to charge you income taxes for giving your spouse title to the car in the divorce.

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