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What will happen to your family business during divorce?

If you and your spouse decide to divorce, the subject of assets may be much on your mind, and the family business is going to be one of the main considerations.

How much involvement you and your spouse have in the company is one of the factors that will determine how the court will treat the business in terms of property division.

Not just an asset

With the exception of your home, your business is probably the biggest asset you have, and the source of your income. The first question is, when did the business begin? Was it already in operation before the wedding or did you and your spouse start the business after you were married? Do you both contribute to the business in some way, either through physical work or by way of a monetary investment?

Establishing value

You must establish the worth of the business and call in a business valuation professional. There are normally two accepted standards of value: fair value and fair market value. The latter represents the price that a willing buyer would pay to purchase the business from a willing seller. However, this figure could be quite different from the fair value figure, which is based on the context of the business and will be established by the court.

Thinking ahead

An experienced attorney will tell you that in the state of Texas, the courts will consider your family business to be community property if it was founded during your marriage. If it was started beforehand, the courts may see it as separate property, but you must show proof of that. After sorting out all of the facts, there will be decisions to make. For example, you and your spouse might continue operating the business as co-partners. You could decide to sell the business and split the proceeds. On the other hand, one of you might buy the other out. Dealing with a family business during divorce is a complicated matter, and certainly, it will involve strong emotions. After all, what happens to the business will likely have a long-term effect on your lives going forward.

 

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