When a couple goes through a divorce, their assets and liabilities may be divided through a settlement agreement or court order. When one or both spouses have ownership of a business, the valuation of the business is included in assets and liabilities are divided. In this case, the process of valuing and dividing a business property takes special legal expertise.
Types of Business Property that must be divided in a divorce case:
- Closely Held Business
- Business Interest
- Business Assets
Closely Held Business entities can be in the form of:
- ‘C’ corporation
- ‘S’ corporation
- Limited partnership, sole proprietorship
- Limited liability company (LLC) or
- Any other recognized business entity
If the Business Interest is considered community property, it is recommended for an expert in the field be consulted to determine the value. After business valuation is agreed upon by both spouses, a family law attorney will work with you to develop a strategy to attain an equitable division of the asset.
A Business Asset is an item of value owned by a company. Business assets can include anything from tangible items, such as vehicles and office equipment, to intangible items, such as intellectual property. Proper documentation of the division of
the business assets, ownership rights, and ownership duties when going through the divorce process is highly critical.
While every business and divorce are unique, there are three common ways of dividing a business during divorce:
- Sell the business and divide the profits
- Buy-out the other spouse’s interest
Business Valuation for Divorce
If you decide you can’t co-own the business with your ex, you will need to contact an attorney to help you understand what your options are for no longer being a part of the business with your ex. This will include how the division of assets and debts, value of the business is decided.
Community Property versus Separate Property
In Texas, a business started during the marriage with joint funds is “community property” – which means each spouse owns part of the business. A business created before marriage by one spouse, or started with funds earned before the marriage or by gift or inheritance, might be part separate and part community or, all separate.
When determining whether a business is community property or separate property, your family law attorney will need to know: when the business was started; the source of funds used to start the business; and the financial and labor-related contributions of each spouse to the business during the marriage.
Defining whether a business is community property or separate property or both can be very complex. The team at Capps Law Firm, PLLC, is driven to serve our clients’ goals, and that includes working with others such as financial professionals. Kelly J. Capps is a board-certified family law attorney with experience in business law and business litigation, which is needed to assess whether all or part of the business is community property.
If you would like to discuss your family law matter and the implications it has on your business, contact our office at (512) 338-9800.