6034 West Courtyard Drive, Suite 100,
Austin, TX 78730

Call Us512-610-6199

Subscribe to this list via RSS Blog posts tagged in dividing a business in divorce

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.

...

TX high asset divorce lawyerThere are multiple financial issues that will need to be addressed during a high asset divorce. Couples who have a high net worth may need to complete complex property litigation as they determine how to divide the assets they own. These concerns can be especially important for spouses who are business owners, including those who are doctors, accountants, chiropractors, or operators of other types of professional practices. In many cases, a business will represent a primary source of income for a spouse, and they will want to ensure a company or practice can continue operating successfully after their divorce is complete.

Division of Business Interests

A business will be considered part of a couple’s community property if it was founded or acquired during their marriage. If one spouse owned a business before getting married, it will usually be considered separate property. While separate property will remain under the ownership of one spouse, the other spouse may ask to be reimbursed for contributions made toward the business, including time and effort put toward building the business or marital funds that were used to pay off business debts.

When a business is included in community property, spouses will need to determine how to divide business interests along with their other assets and debts. To ensure that a business can remain in operation, one spouse may maintain ownership of a business while the other keeps other assets of an equal value. One spouse may also purchase the business interests the other spouse would be entitled to receive, either through a cash payment or by making arrangements to pay the amount owed over time.

...

TX divorce lawyerDivorce involving business owners can be particularly complicated, especially in an Austin high asset divorces. When one or both of the spouses own a business, the division of community property can become extremely complex. The following are just a few special considerations for dividing a business in a high asset divorce. If you have questions or need assistance, you should get in touch with an Austin high net worth divorce lawyer as soon as you can.

Business Appraisals Are Extremely Complicated and Should Be Done Early

Chances are good that much (if not all) of your interests in a business will be classified as community property and will be subject to distribution. Sometimes spouses own a business together, while in other scenarios only one of the spouses is involved in a business. In either circumstance, it will be essential to have a proper business appraisal done to ensure that the court knows precisely how much your business (or business interests) are worth when determining how to divide community property.

Business appraisals are extremely complex and require the skills of an experienced business appraiser. A business appraiser can complete different types of business appraisals, including those for the purposes of selling the business and those for the purposes of identifying the value of a business in a divorce. Businesses can be valued in various ways, as well. For example, a business appraiser can provide a fair market value, which can take into account all intangible assets of the business as well as tangible assets (like equipment and furniture). A fair market value provides a number that reflects what the business might sell for. You can also consider a capitalization of earnings valuation which attempts to calculate the “net present value” of the business based on “its projected future earnings.” In addition to appraising the business, you may also need a valuation of your business stock.

...

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.

...

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:

...

TX divorce lawyerAlthough prenuptial agreements are not something that business owners typically think about when they become romantically involved with another person, the reality is that making these types of considerations is extremely important for those who are considering marriage. Entering into this type of contract before a marriage takes place can give both parties peace of mind, while also ensuring that a company’s assets are protected in the event of divorce. For help drafting or enforcing your own prenuptial agreement, please contact an experienced high asset divorce attorney who can assist you.

Owning a Business Prior to Marriage

If a person owns a business going into a marriage, then those assets will most likely fall under the category of separate property in the event of divorce. However, any growth in value and earnings stemming from the business can and probably will be considered community property, which means that if a couple decides to divorce, the original business owner would need to split those earnings down the middle. Furthermore, if the spouse who didn’t originally own the business ended up substantially contributing to it during the marriage, then that business interest could be considered commingled with the couple’s community property and so converted into marital property for the purpose of division upon divorce.

A couple can forestall all of these complications by entering into a prenuptial agreement before getting married. For instance, the agreement could include provisions explaining that any increase in value or earnings from the business during the course of the marriage will still remain the original owner’s separate property in the event of divorce.

...
Super Lawyers Super Lawyers TBLS AV Martindale
Avvo Top One Expert Top 10 Law Firm
Back to Top