Helping You Through The Most Painful Details Of Your Divorce

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3 divorce challenge that can arise when one spouse owns a small business

On Behalf of | Oct 16, 2023 | Family Law

A small business takes years to develop but can afford someone control over their work schedule. Someone with the connections, experience or education to thrive in a specific industry can leverage their resources and background to start a successful company. Their family-owned business can provide income for their family and might even provide employment opportunities for their spouse and children. However, that business will likely be at risk if the person who owns and runs it eventually divorces.

Under Texas law, divorcing spouses must generally divide their marital property at the end of a marriage, and the business could very well be one of the biggest resources in a couple’s marital estate. It could also create certain challenges during the divorce process.

Handling employment matters

It may be too difficult for the spouses to continue working together, and someone may also need to arrange to have in-laws and social acquaintances connected to their spouse leave the company as well. If someone intends to continue working with their spouse after the divorce, they will typically need to have very clear agreements in place to minimize the likelihood of conflict and possible litigation later.

Determining what the business is worth

Business valuation can be a very complicated process. There are a variety of different ways to put a value on a business, including models that look at assets and others that prioritize future income. The final value of the company will impact property division and possibly even support matters.

Establishing the marital component of the business

When someone started the company, what they invested in it and what contributions their spouse made to the organization can all impact the property division process. Spouses may have a hard time agreeing on what portion of the business’s value is marital property and what portion is the separate property of the spouse who technically owns the company.

There is no way to predict what a judge will do when applying community property laws to complex assets like a business. Many people with an ownership interest in an organization will look for ways to settle with their spouse outside of court so that they have control over the details of property division.  Otherwise, a judge will make the final choice about how much of the business is subject to division and how the divorcing couple can achieve a reasonable split of its value.