What Happens to the Family Business During Divorce?

Few other assets are as fought-over or disputed in a divorce as a business owned by the two divorcing spouses. While a few couples are able to continue operating their company amicably after a divorce, that’s not realistic for many spouses. If that applies to you and your spouse, the question then becomes: how will you split the business so each of you receives your portion of the marital asset? 

Texas is a Community Property State

Unlike many other states, spouses in Texas are subject to the community property legal standard. This means any marital property (property gained by either spouse during the marriage) is presumed to be owned equally by each spouse and will be split between spouses during divorce proceedings. Even if you started your business prior to your marriage, all or part of the business may become marital property if your spouse contributed (financially or in sweat equity) to its success.

Ways You Can Split Up Your Business

If you and your spouse have made the decision to cease co-owning your business, there are a couple of well-trodden paths you can take.

  • You could sell the business and split the profits. You can make a fairly clean break from the company (and your spouse) by simply finding a buyer and dividing the capital gain. Keep in mind that this process can take several months or even years, so be prepared for the long game.
  • Either you or your spouse buys out the other’s interest in the company. If one of you is more interested in continuing running the enterprise, this might be the best option. Payment for either spouse’s stake in the company doesn’t necessarily have to come in the form of cash, either. You could offer up retirement accounts, pensions, or other assets with significant valuations to compensate your spouse. 
  • You can “wind down” the business and liquidate its assets. Instead of selling the company as a unit, you can opt to execute the formal legal process of winding down. To wind down, you must sell off certain assets, pay creditors, and distribute the company’s assets. You will likely work with a professional liquidator.  

These options are generally suited for closely held businesses. Splitting up a C corporation is going to be much more complex than dividing an LLC or partnership.

Kimbrough Legal Can Handle Your Complex Family Law Matters

Although it is not legally required to have an attorney guide you through your divorce, having legal counsel means that your interests will be well-represented throughout the process. While divorce is not something either spouse “wins,” you don’t want to give in too much and have a final divorce decree that isn’t fair to you. We’d love to talk about your case and how we can help; give us a call at 833-553-4521 to set up a consultation with our team.

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Kimbrough Legal, PLLC

As a licensed Texas attorney, Tycha is a fearless, knowledgeable, and passionate advocate who commits to going above and beyond to serve her clients.

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