Owning a business in a divorce can be complicated, especially if you are an executive or own a significant interest in a corporation. This is because it can be difficult to determine what constitutes community property and what constitutes separate property.

If you are facing a divorce and own a business, it is important to seek the assistance of a skilled divorce attorney. A divorce attorney can help you protect your assets and ensure that you receive an equitable share of community property.

Here are some of the challenges of dealing with a business in divorce proceedings:

Determining what constitutes community property: Community property is all property acquired during the marriage, regardless of which spouse acquired it. However, there are exceptions to this rule, such as property that was inherited or gifted to one spouse or property that was acquired before the marriage.
Valuing the business: It is important to have the business valued by a qualified appraiser. This will help the court determine the fair market value of the business and how to divide it equitably between the spouses.
Protecting the business: If the business is still in operation during the divorce, it is important to take steps to protect it. This may include obtaining a temporary restraining order to prevent the other spouse from taking any actions that could harm the business.

If you are facing a divorce and own a business, it is important to contact an experienced divorce attorney to discuss your case. A good divorce attorney at The Law Offices of Richard C. McConathy can help you protect your rights and interests and can work to get you the best possible outcome.

You deserve to have a fair and equitable divorce. With the help of an experienced divorce lawyer, you can achieve the best possible outcome for you and your business.

Determining Whether a Business is Community or Separate Property

Texas law presumes that any property acquired during the marriage is community property, regardless of which spouse acquired it. This includes businesses. However, there are exceptions to this rule, such as property that was inherited or gifted to one spouse or property that was acquired before the marriage.

If you started a business before the marriage, it is likely to be considered your separate property. However, if your spouse contributed to the business in any way, such as by providing financial support or working in the business, they may have a claim to a portion of the business, even if it is considered separate property.

If you commingled community property with the business, this could also affect the characterization of the business. For example, if you used community funds to purchase business assets or pay for business expenses, this could make the business a community asset.

If you started a business after the marriage, it is likely to be considered a community asset. This means that the business is subject to division in a divorce.

If you are facing a divorce and own a business, it is important to contact an experienced divorce lawyer to discuss your case. A good divorce lawyer can help you protect your rights and interests and can work to get you the best possible outcome.

You deserve to have a fair and equitable divorce. With the help of an experienced divorce lawyer, you can achieve the best possible outcome for you and your business.

How Businesses Get Divided

The following factors are considered when dividing business equity in a Texas divorce:

The value of the business
The other community assets to be divided
Who owns and runs the business
The community debts to be divided

Options for dividing business equity in a Texas divorce include:

Compensation — Most business owners prefer to compensate the other spouse for their share of the business equity rather than selling or dividing the business. This can be done by giving the other spouse a larger share of other marital assets, such as more equity in the home, more cash, or post-divorce support payments (alimony) instead of a large cash payment.
Sale — Another option is to sell the business outright and split the proceeds between the parties. This is often the least desirable option, as it involves selling a business that the parties have spent considerable time and effort building up. However, this option may be necessary if the parties cannot agree on a division of the business or if there are not enough assets to adequately compensate one party for their community interest.
Equal Division — Another option, which is often underutilized, is to divide the business in an equal manner. This may be a good option if both divorcing spouses are business owners or play an integral role in the company and want to remain in their roles post-divorce. However, this option can be challenging if the parties do not get along well enough to remain business partners.

The best option for dividing business equity in a Texas divorce will depend on your specific circumstances and goals. It is important to consult with an experienced divorce lawyer to discuss your options and develop a strategy that protects your rights and interests.

Here are some additional tips for dividing business equity in a Texas divorce:

Be honest and upfront with your lawyer about your business and its finances.
Be prepared to provide your lawyer with all relevant documentation, such as financial statements, tax returns, and business contracts.
Be prepared to compromise. It is unlikely that you will get everything you want in a divorce, so it is important to be willing to compromise to reach an agreement.
Be patient and understanding. Divorce can be a long and difficult process, but it is important to remember that it is temporary.

You deserve to have a fair and equitable divorce. With the help of an experienced divorce lawyer, you can achieve the best possible outcome for you and your business.

Valuing a Business

Business valuation in Texas can be complex, especially in the context of a divorce. There are several methods for determining the value of a business, each with its advantages and disadvantages.

Stipulated Valuation — If both parties agree on the value of the business, this is the most straightforward method of valuation. However, it is important to note that a stipulated valuation may not be accurate, especially if the business is complex or closely held.
Forensic Accountant or Appraiser Valuation — If the parties cannot agree on the value of the business, either or both parties may hire a forensic accountant or appraiser to provide an estimated value. This process involves analyzing the business’s assets, liabilities, income, and prospects.

The three most common methods of valuing a business in a Texas divorce are:

Cost Approach: This approach calculates the value of a business by adding up the market value of its assets.
Market Approach: This approach compares the business to similar businesses that have recently sold.
Income Approach: This approach estimates the value of a business based on its future earnings potential.

The best method for valuing a business in a Texas divorce will depend on the specific circumstances of the case. It is important to consult with an experienced divorce lawyer and business valuator to determine the best valuation strategy for your case.

You deserve to have a fair and equitable divorce. With the help of an experienced divorce lawyer and business valuator, you can achieve the best possible outcome for you and your business.

The Impact of Goodwill

In addition to the tangible assets of a business, there is also the intangible asset of goodwill. Goodwill is the value of a business that is not directly attributable to its tangible assets, such as its location, brand name, customer base, and reputation.

There are two types of goodwill: personal/professional goodwill and enterprise goodwill.

Personal/professional goodwill is the value that is directly tied to the business owner. For example, if you are a doctor or lawyer who has a reputation for excellence, your goodwill is the value that you bring to the business. Personal goodwill is considered separate property and is not divisible in a Texas divorce.

Enterprise goodwill is the value that is attached to the business itself. This can include the business’s location, name, customer base, and organizational structure. Enterprise goodwill is considered community property and is divisible in a Texas divorce.

As a business owner in a Texas divorce, it is important to understand the difference between personal/professional goodwill and enterprise goodwill. This distinction can have a significant impact on the division of your business in a divorce.

How Businesses Operate During Divorces

Texas divorce courts will almost always make a ruling for the temporary operation of a community property business. This is to ensure that the business is not disrupted during the divorce process.

The court may issue temporary injunctions to prohibit a party from interfering with the business or make specific rulings as to which party may make certain decisions and how the business funds may be used. The court will not divide or award the business until the divorce is finalized.

This could be a few months or several years. Therefore, the court will likely determine some parameters for keeping the business up and running at the beginning of the case.

Ideally, the parties would be able to reach a consensus on how the business should continue to operate during the divorce, but absent an agreement, the court will make a finding.

Determining Business Assets to Be Divided

If a business is determined to be community property, it is essential to have an accurate assessment of its value for divorce. The first step is to determine the type of business, as this will dictate the valuation methodology.

Sole Proprietorship: The value of a sole proprietorship includes all assets held by the business.
Partnership: Only a partner’s interest in the partnership is considered the property of one or both spouses. The assets of the partnership are owned solely by the partnership and are not divisible in a divorce.
Corporation: Only an individual’s interest in the corporation can be valued and divided, but not any assets owned by the corporation.

Once the type of business has been determined, a qualified business appraiser can use a variety of methods to value the business. Some common methods include:

Cost Approach: This approach calculates the value of a business by adding up the market value of its assets.
Market Approach: This approach compares the business to similar businesses that have recently sold.
Income Approach: This approach estimates the value of a business based on its future earnings potential.

The best method for valuing a business in a divorce will depend on the specific circumstances of the case. It is important to consult with an experienced divorce lawyer and business valuator to determine the best valuation strategy for your situation.

Determining the value of a business in a divorce is a complex process that takes into account a variety of factors, including the business’s assets, liabilities, earnings, and prospects. There are several different methods used to value businesses, each with its advantages and disadvantages.

Common business valuation methods include:

Comparable sales method: This method compares the business to similar businesses that have recently sold. This is a relatively straightforward method, but it can be difficult to find comparable businesses, especially for unique businesses.
Book value method: This method subtracts the business’s liabilities from its assets to arrive at a value. This method is simple to calculate, but it does not take into account the business’s earnings potential or future growth prospects.
Income approach: This method estimates the value of a business based on its future earnings potential. There are several different income approach methods, but they all involve discounting the business’s future earnings to arrive at a present value. This is the most complex valuation method, but it is also the most accurate for businesses with strong earnings potential.

The best valuation method for a particular business will depend on the specific circumstances of the case. It is important to consult with an experienced divorce lawyer and business valuator to determine the best valuation strategy for your situation.

Once the value of a business has been determined, the parties must decide what to do with it after the divorce is finalized. There are three main options:

Retain joint ownership: This is not an ideal outcome, as it can lead to conflict and disagreement between the former spouses.
One spouse buys out the other: This is the most common option, and it can be done in a few different ways. The spouse who buys out the other can pay the other spouse a lump sum, or they can make payments over time. The payments can be structured in a variety of ways, such as monthly payments or a percentage of the business’s profits.
Sell the business and split the proceeds: This is a good option if the parties cannot agree on who should own the business or if they simply want to move on from the business altogether.

The best option for dividing a business in a divorce will depend on the specific circumstances of the case. It is important to consult with an experienced divorce lawyer to discuss your options and develop a strategy that is in your best interests.

Divorce for Business Owners Attorney in Tarrant County, TX

If you are a business owner who is now about to be entering the divorce process, you need to get yourself legal protection as soon as possible. The Law Offices of Richard C. McConathy understands the many complexities business owners have to deal with in a divorce and can help you navigate all of the many challenges you are likely to encounter in Fort Worth, Arlington, Grapevine, Keller, Southlake, or other cities in Tarrant County, Texas.

You can call (817) 422-5350 or contact us online to schedule a free consultation so we can get a better idea about your unique situation and advise you on the next steps you should be taking. Our firm also knows how to handle many kinds of domestic violence issues that can arise in these cases, including people dealing with protective order hearings.