Family Businesses In Divorce

At Jamie Graham & Associates, PLLC, our attorneys frequently work with San Antonio business professionals who are concerned about how their family business relates to property division during divorce. By discussing the details surrounding your business, we can help you navigate the legal process and address your concerns.

A closely held family business founded prior to marriage is generally considered separate property. However, any appreciation in the business's value that occurred during marriage or earnings received from the business would be categorized as community property assets.

During divorce, community property is subject to property division. If your spouse contributed to the business in some way, then that contribution would also be an asset to valuate.

Businesses formed during marriage are community property, even though only one spouse formed the business and titled it in his or her name. When businesses are community property, the process of property division determines each spouse's share of the business.

What options exist for dealing with a family business during divorce?

For closely held family businesses that are community property, reaching a settlement often hinges on both spouses' goals regarding their lives after divorce. Are they ready for retirement and planning to sell the business anyway? Were the spouses partners in the business? Does one spouse plan to continue running the business without the other spouse's involvement? Was a spouse never an active business partner, but heavily supported the family while the other spouse received an education for that line of work? Based on your answers to these questions, some options for dealing with the family business may include:

  • Business sale . In the event of divorce, if both spouses are equal business partners and plan to retire or go into other lines of work, obtaining a business valuation and selling the business is frequently the best option.
  • Business buyout of the other spouse . If one spouse plans to continue running the business, a buyout plan can be negotiated, paying in one lump sum, paying over time or devising an equitable exchange for other marital assets may be appropriate.
  • Continued business operation by both spouses . Some spouses do not encounter problems getting along as business partners or business associates. Divorce terms may involve clarifying ownership and leaving the business intact.

Whatever option best suits your situation, business valuation is typically necessary for an overall perspective on how to deal with a family owned business. Accountants or financial professionals can assess the business's value, either by determining market value, total value of business assets and debts or business income generated. Good will of the business based on the business's reputation is also a factor in business valuation.