When a business is part of a marriage, separating its value can be more complicated than separating the couple’s other assets. A company may have started with one spouse’s money or idea but grown through years of work, investment and shared financial decisions. By the time a divorce begins, it may be difficult to draw a clean line between what existed before the marriage and what developed during it.
When can a business become part of the marital estate?
Texas presumes property acquired during marriage is community property. Property owned before marriage may qualify as separate property, as may certain gifts and inheritances. However, the timing of ownership does not necessarily resolve every issue involving a business.
For example, one spouse may have started a company before marriage and continued operating it after the wedding. If the business later expanded through marital funds or the efforts of either spouse, the court may need to determine whether some of that growth relates to the community estate.
How can the court account for a business?
Property division does not necessarily require the court to sell a company or transfer part of the business itself. Instead, the court can consider the value of the community interest when dividing the overall estate.
Several records may help establish the business’s ownership, financial history and value:
- Formation and ownership documents
- Tax returns and financial statements
- Business bank records
- Compensation and distributions
- Business debts and liabilities
- Valuations or evidence of the company’s value at different points in time
The court may also consider whether the business has commercial goodwill. Texas courts distinguish commercial goodwill, which can have transferable value, from personal goodwill based solely on an individual’s reputation or skills.
Keeping the bigger picture in view
For business owners, property division can involve years of financial decisions and work that do not fit neatly into separate categories. Looking closely at the business’s history can help clarify which interests belong in the community estate and how its value may factor into the divorce. Because those determinations can affect both the business and the division of other marital assets, business owners should consult a Texas family law attorney early in the process. An attorney can review the business’s ownership and financial history, explain how Texas property division rules may apply and help identify the issues that may need to be addressed during the divorce.