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Basics for business owners going through divorce

| Mar 25, 2020 | Property Division

Many people in the Houston area make their living by owning and growing a family-held or other small business.

Many Texans actually manage to acquire a great deal of wealth through their ownership of a family business and have much of their net worth tied up in it.

When a business owner or co-owner of a business goes through a divorce, the fact that a lot is at stake can make the property division process contentious.

Small businesses are also relatively hard to value since, unlike large corporations, they are rarely traded on the public market. Thus, it is hard to put a precise value on a small business without knowing the right financial questions to ask.

It can be even harder to split a family business between two spouses.

For example, dividing up a family business in a divorce is particularly tough when only one spouse owned the business and the other spouse has limited knowledge and experience with it. It makes continuing to run the business at the status quo almost impossible, yet buying out one’s spouse can be prohibitively expensive.

Nevertheless, because Texas is a community property state, all marital property, including business interests, will ordinarily get divided 50-50 between two divorcing spouses.

There may be some question is to whether a person’s interest in a family business is marital property. For instance, if the owner had an interest in the business before getting married, she may be able to claim the family business as separate property.

Likewise, if the interest in the business came to a person via gift or inheritance, a court may consider it his separate property.

Dividing up a small business because of a divorce will often require the couple to resolve a number of complicated issues. Resolving these issues incorrectly or hastily can profoundly hurt one’s finances, so understanding the ins and outs of the process is important.

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