Divorce for Dallas Business Owners
Experienced Advocacy for Divorces Involving Business Assets
Many of the clients who come to us at O’Neil Wysocki P.C. for divorce assistance are members of the Dallas business community who own and operate businesses that they founded or inherited from their families. The fact that either or both of the spouses in a divorce own a business can cause the case to become far more complex and involved than it might otherwise be.
Parties to a high net worth divorce are more likely to get involved in heated litigation that has the potential to drag on for months or even years and to leave both sides drained financially.
How Is a Business Divided in a Divorce?
Under Texas state law, all of the property owned by the spouses in a divorce will be categorized as being either community property, part of the marital estate, or as separate property owned by only one of the spouses. If the business was started prior to the marriage, it will be considered to be the separate property of the business owner, whereas it would be community property if it were founded during the marriage.
While this distinction may seem straightforward, in practice it is anything but. Even if the business is a fundamentally separate property founded prior to the marriage, the amount by which it increased in value during the marriage is generally treated as community property.
Business Valuation in Texas Divorce Cases
The first step in a divorce involving a business owner is to discern whether or not the business, or part of the value thereof, is to be considered community property. Next, it is necessary to perform an exhaustive business valuation to determine how much the business asset is worth. This normally requires the services of a certified public accountant with experience in divorces involving businesses.
There are three general approaches to business valuation, including:
- Market Valuation - Based on the relative price of similar businesses that have recently been sold
- Income Valuation - Based on the cash flow and profits earned by the business
- Asset Valuation - Based on the combined assets and liabilities of the business
Another aspect of business valuation is the goodwill associated with the business. In this context, goodwill is essentially the total value of the business, minus the value of the assets. How much is the reputation of the business worth on the market? Personal goodwill associated with the business owner or principal is generally considered separate property, whereas enterprise goodwill, the value of the business' name and reputation in the community, is considered to be community property.
What Are My Options for Business Distribution?
Because many businesses will either be considered community property (if founded post-marriage) or have aspects of the business such as value increases that are considered community property (if founded pre-marriage), business owners should expect to distribute their business during property division.
The likelihood that at least certain parts of your business will be considered community property is also one of the reasons so many attorneys encourage business owners to get a pre or postmarital agreement.
Assuming you don't have a marital agreement dictating what will happen to your business in the event of a divorce, you have several options.
You may be able to buy out your spouse. This requires that your spouse be amenable to relinquishing control of the part of the business that's considered community property. It may be expensive, but it's often the only recourse for business owners who want to maintain complete control of their operations.
Alternatively, you may also be able to award your spouse with stocks or other options equivalent to the value of the community property of the business.
If you and your spouse are both invested in the business, you may choose to continue operating it as co-owners. This can be a good option if you're on amicable terms with them and can trust them to continue acting in the business's best interests.
If co-ownership or buying your spouse out isn't an option, it may be possible to split your business into two separate entities. This can be risky and result in the generation of a competitor, but it could be the only way for you to retain ownership of your brand.
Lastly, if all else fails, you can either sell the business and divide the community property equitably or dissolve the business as an entity. Understandably, these options are typically the last resort for business owners.
Let O’Neil Wysocki Fight for You
Divorces involving businesses and other large assets can often be settled quickly and efficiently through out-of-court negotiations and alternative dispute strategies such as mediation. If, however, you and your spouse are not able to achieve a property settlement out of court, one of our attorneys can represent you before the judge in a trial to determine who will receive the assets.
In some cases, the divorce may end with the business owner paying a settlement to the other spouse for satisfaction of his or her stake in the business. In other cases, the other spouse may be denied any type of payment or continuing interest. Contact O’Neil Wysocki P.C. now for to schedule an initial consultation to discuss your concerns and learn about your options.
O’Neil Wysocki P.C. can be reached by phone at (972) 852-8000