Business Owner Divorce

Divorce for the High Net Worth Business Owners

Texas Family Law and Business Property Division

In a high-asset divorce, the Texas Family Code makes distinctions between “community” and “separate” property, where community property belongs to both spouses and separate property does not.  In a divorce, Texas family law requires a “just and right” division of community property.  One major factor in divorce proceedings, if one or both spouses own a business, is whether (and how much of) a business is community property within the marriage.

Thus, a number of issues have to be determined if one or both spouses owns a business.  If the business was started before a marriage, it might not be considered community property unless changes to the business were made after the marriage.  The initial source of funding when the business was started must be taken into account, and whether community funds were used in the business must be determined.

The reputation of a spouse or owner, the reputation of the business, and the location of the business — known as the concept of “goodwill” — must be considered in this process.

Business Valuation before Property Division

Additionally, the value of the business must be assessed by a qualified CPA who is certified in business valuations. Several valuation methods can determine the value of a business.  The first is the market valuation approach, in which value is determined by the price at which a comparable business has sold.  The second is the income approach, which provides a value estimate by translating cash flow and business profits into value.  The third is the asset approach, which determines values according to the values of assets and liabilities associated with the business.

As with other types of property and debt division, After the business has been characterized as community property and its value has been determined, the parties to divorce (or the judge) agree on a fair division and distribution of the business and assets.

Business Operations when Both Spouses Work at the Business

If spouses both work at the business, ongoing agreements that define the roles and responsibilities of each spouse can be maintained so that the business continues to operate effectively during the process of divorce.

Other Considerations for High Earners under Texas Family Law

For additional considerations, please visit our high earner child support page.