In a community property state like Texas, all wealth known to be considered marital property by divorce attorneys is subject to being divided up and split between the two spouses.
This is easier to do with bank accounts, physical property, and other types of assets but can be extremely difficult to do when one or both spouses own a business.
If the business came about during the marriage, regardless of whether it is owned by one or both spouses, divorce lawyers must advise on the proper way to disperse the business as part of the community property owned by the couple.
How Can You Split A Family-Owned Business?
Family divorce attorneys advise that there are two ways to handle a business that becomes part of a couple’s marital property in a divorce:
- The business can be liquidated altogether, with each spouse keeping their portion of the sale.
- The business can be valued and one spouse buying out the other spouse’s portion so that they still get their portion of those assets.
Valuing The Business
In either case, the distribution of a business that is marital property begins with agreeing on the value of that business.
Valuing a business is much easier said than done, as any divorce attorney will attest.
There are multiple methods that can be used to do so and depending on the size and scope of the business, might involve bringing in experts to help.
According to family divorce attorneys, business valuation can be determined using one or a combination of these methods:
- Fair Market Value - The price the property and assets can bring if offered for sale on the open market.
- Intrinsic Value - The actual market value of the property and assets, including potential value, aside from what the current fair market value alone is.
- Book Value - Valuation based on earnings, assets, and liabilities, and projected income.
- Owner Value - Any additional value held by the owner including various intangible values like workforce value, process values, and more.
During the division of marital property, divorce attorneys and financial experts will usually apply more than one of these valuation methods while also considering other factors such as excess earnings, discounted earnings, and adjusted net assets, each of which can add or subtract value from the end dollar figure of a business’ worth.
Ultimate Goal is Sale of the Business
The goal, in the end, is for divorce lawyers and their clients to agree on the value of the business, both monetary and intangible, and then assign a dollar amount to these different values if the business is to be kept, with one spouse reimbursing the other for their half of the ownership value.
When the business is instead sold, the spouses split the money earned as required by Texas community property laws.