Valuing the Active Appreciation of Your Business

 Posted on April 10, 2019 in Family Businesses

Even 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:

• Physical effort;
• Producing ideas;
• Offering advice; or
• Assisting with company operations.

Not all contributions to a business qualify as active appreciation. In fact, there is a term, known as passive appreciation, that is used to describe increases in value that cannot be attributed to a person’s actual contribution. Changes in supply and demand and inflation, for instance, are all considered outside market forces that qualify as passive appreciation. If, for example, the owner of a business did not make any improvements to the parcel of land where the company is located over the years, but the area around the business has been developed and increased in value as a result, any subsequent increase in the value of the business’s property would be considered passive appreciation.

Contact Our Georgetown High Asset Divorce Legal Team

To start working on your own case with an experienced Georgetown high asset divorce attorney, please call 512-610-6199 or complete one of our brief online contact forms and a member of the legal team at Powers and Kerr, PLLC will contact you as soon as possible.

Sources:

https://www.forbes.com/sites/jefflanders/2015/01/22/active-and-passive-appreciation-in-the-continuing-story-of-hamm-v-hamm/#21934c8580ee

https://www.forbes.com/sites/jefflanders/2014/09/22/a-multi-billion-dollar-divorce-what-all-divorcing-women-can-learn-from-sue-ann-hamm/#20416c0473f7