How Will a Texas Divorce Impact Your Business?

 Posted on July 07, 2024 in Divorce

Many aspects of divorce can cause difficulties for divorcing spouses. Some issues are expected, while others can be very unexpected. A Texas couple may expect that a business will be divided according to Texas community property laws but may not fully understand how that can vary depending on the circumstances.

The type of business can have some bearing on how it will be divided. An executive business may be handled differently than a "mom-and-pop" business in certain ways. Other issues related to the business can also make a difference in division.  Was the business in question started after the marriage?

Does the business involve the professional license of one or both spouses?  Have both spouses participated in operating the business? Is one spouse’s contributions to the business significantly greater than the others? Were marital assets used to improve the worth of the business?

As you can see, dividing up a business during a divorce can be complex. The division of a business requires a highly experienced family law attorney to ensure the division is equitable. When you have a knowledgeable attorney advocating on your behalf, you can rest easy knowing you will receive your fair share of the business.

Is Texas a Community Property State?

Texas is one of nine states that operates under community property laws rather than equitable distribution laws. Under community property law, all marital property is divided right down the middle. Under equitable distribution, marital property is divided fairly, although not necessarily equally. Texas community property laws divide income, property, and assets accumulated from the date of the marriage equally between the parties. When a Texas business must be divided during a divorce, despite community property laws, there are usually additional issues to consider.   

Could a Texas Business Be Considered Separate Property?

Suppose one spouse owns a dog grooming business at the time of the marriage. The worth of the business at that time is generally considered separate property. If the business has increased in value substantially since the marriage—especially if marital funds were used to operate the business—then the increase in worth since the marriage is subject to division. Family-owned businesses and other business scenarios make divisions much more complex.   

Other complications include spouses who run all their personal expenses through the business accounts. Another is when one spouse is not paid to work at the business—even though the income from the business is material in supporting the family. At the same time, the other spouse could be working and earning a salary and retirement benefits from a "regular" job. Splitting the business in this situation involves much more than the worth of the business.

The tax implications must be considered whether the business division is agreed upon by the spouses or ordered by a judge. Division of certain business holdings can trigger capital gains taxes, gift taxes, or estate taxes. Texas judges will sometimes award a portion of a business to a spouse who has not been active in the business, perhaps when that spouse has been a stay-at-home parent. Since such a move can affect the long-term stability of the business, having a knowledgeable attorney who can anticipate such a move is crucial.   

How Are Businesses Valuated?

Business valuations require a forensic accountant who has access to key documents. The accountant will look at assets, income, liabilities, the size of the business, its future earning power, and the extent each party has participated in the business to determine how it might be split. Unfortunately, in some cases, the business-owning spouse may attempt to conceal or transfer business assets or inflate expenses. Forensic accountants virtually always discover these "tricks," so having a professional valuation is important.

Contact a Collin County, TX Divorce Attorney

The journey through a divorce involving a business is intricate. If you are concerned that your spouse will try to take more of the business than you believe is rightfully theirs, you need to speak with a trusted McKinney, TX divorce attorney. Despite community property laws in Texas, you may be able to avoid the exact split of a business you started before your marriage, particularly if your spouse never materially contributed to the business. Contact The Ramage Law Group at 972-562-9890 to speak to a skilled, experienced divorce attorney.