Why Co-Owning a Business with Your Spouse Can Make Divorce Very Difficult?

A business or an interest in a business can be considered community property. When spouses divorce, it will severely impact the business if it is jointly owned. Because of the many intricacies involved in the division of assets, retaining the services of a skilled divorce attorney will become an invaluable resource for both parties during this difficult time.

How Do They Divide a Business During a Divorce

Texas is one of the nine community property states in the USA. This means dividing assets between divorcing couples should strictly be made equal. Barring post and prenuptial agreements, the courts will usually allocate half of all net assets to each party in the divorce. Working with a seasoned Texas divorce lawyer will help both spouses to identify which assets are separate or community property.

Why Co-Owning a Business with Your Spouse Can Make Divorce Very Difficult

What is Separate Property?

Separate property refers to any asset owned by one spouse prior to marriage. This property can’t be subject to division during a divorce. However, a spouse can still obtain separate property during marriage under particular circumstances.

For instance, if the husband inherits assets are considered separate property and aren’t shared with his spouse. Another example of separate property is settlements awarded in a personal injury. The money obtained therewith only belongs to the person it was given to. An experienced divorce lawyer can help you identify every piece of separate property and ensure that it isn’t subject to division during the divorce process.

What is Community Property?

Community property refers to any asset or debt acquired during the marriage. It doesn’t matter whose name the property was under when it was acquired. The court will consider any purchased property as jointly owned as long as it was obtained while both parties were married.

Community property is also known as marital property. In the USA, the nine states that espouse community property laws include:

  • Texas
  • Wisconsin
  • Washington
  • New Mexico
  • Idaho
  • Louisiana
  • Nevada
  • Arizona
  • California

Under community property law, tangible and financial assets can be considered marital assets. This means businesses are considered co-owned if they were established during the marriage. The division of these assets can be meticulous and time-consuming, but your attorney can help make the process easier.

How Can a Divorce Negatively Impact Your Business

Splitting a company can have dire consequences for the business. Remember that a business is considered a separate living entity from its incorporators. Courts will consider the type of business during the division, such as a corporation, non-profit, LLC or partnership.

Companies can own an inventory of goods, heavy equipment, office tools, furniture, and real property. It can also own virtual assets such as social media and other digital assets. Businesses can also have contracts with other people and other businesses.

The court will consider all of these factors when the company is split between spouses. An experienced Texas divorce lawyer will help you divide or liquidate any assets to ensure a fair division between parties. However, this division can slow down business operations and affect the employees’ morale during the transition.

The Type of Business and the Division of Property

The type of business will also impact how the court will divide the assets. For instance, after its incorporation, the available shares of stock can be divided between the two former spouses. In the case of an LLC, membership interests can be divided equitably. Your divorce attorney can help you divide the assets equally according to your business type.

However, if the company is publicly held, dividing the assets equitably between the former spouses can become complicated. A lengthy business valuation will be required to determine how much the company is worth.

How a Divorce Attorney Can Help

The courts usually award the company to the spouse actively running the business. To offset the value of the enterprise, the court will grant the other spouse other marital assets. However, in some cases, the court will award shares of the company, primarily if both spouses worked hard and contributed to the building of the enterprise.

Several options are available to spouses when the company’s assets are divided. A reliable Texas divorce lawyer can help you choose the option that will benefit you the most:

  • Buy Out the Partnership: One spouse can offer to buy out the other’s interest in the business, enabling that spouse to continue business operations solely.
  • Company Division: This option can be challenging since contracts, customers, inventories and other company assets can’t be easily divided. The split will also impact market competition and negatively affect the company’s market share.
  • Continue Operating the Business Together: Keeping the business intact can be a favorable option for the business. The challenge is retaining an amicable relationship between the divorcing spouses as they interact during business operations. It will require them to distinguish between their professional and personal lives.
  • Liquidate the Company: The final option is the dissolution of the company. Selling the company and splitting the proceeds can sometimes be more manageable than splitting various assets.

Retaining the services of an experienced divorce attorney can also help you avoid the common pitfalls during business valuation:

  • Not hiring a forensic accountant or professional appraiser.
  • Failing to account for industry risks, contracts and other special circumstances within the business.
  • Not using industry-accepted evaluation method.
  • Failing to disclose all debts, liabilities, income, properties, expenses, and other assets owned by the company.

Navigate the Complex Process With the Help of a Seasoned Divorce Attorney

Dividing a co-owned business can be a complicated process. Each case will be unique, and it’s essential to pay attention to every detail to ensure an equitable division of assets between both parties in the divorce.

To learn more about your options, call the Law Offices of David Kohm today at any of our convenient locations and get a free consultation.

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