Attorney
In a Texas divorce, marital assets are subject to equitable division. Marital assets are considered to be, with certain exceptions, those acquired, those that gained in value, or those that both spouses contributed to building during their marriage. This can include a business. If you are a business owner and are in the midst of a divorce, you may very well be concerned as to whether your soon-to-be former spouse will be entitled to half your business.
Is My Spouse Entitled to Half of My Business?
Because Texas is an equitable distribution state, a court, during the division of the marital assets, will look to divide the assets in an “equitable” or “fair” manner. Not only does equitable not necessarily mean a 50-50 split, but marital assets are also rarely subject to a split right down the middle. Furthermore, the division of the assets will attempt to be fair both over all as well as when looking at individual assets. For example, should a business be subject to equitable division, a spouse’s specific role in the business, as well as his or her contributions to the business, will be evaluated. Should it make more sense for a spouse to retain all or the majority of the interest in a business, then the other spouse may receive more of other marital assets to counterbalance granted the other spouse the whole or majority interest in the business.
This is all to say that, while your spouse may be entitled to a portion of your business, if it is considered to be a marital asset in whole or in part, your business will rarely be split in half. Should the court grant your spouse a portion of the business interests, you are still likely to have the option of buying out your spouse so that you can retain full ownership of the business.
In order to divide the business and the marital assets as a whole in a manner that is equitable, the business will first need to be subjected to valuation. Valuing a business can be complicated and there are various methods that may be employed. One of the most common methods of business valuation is the book value method. With the book value method, the value of the business is what the business claims as assets held in its company records. To calculate the value of a business via the book value method, you take the original cost of the business assets, subtract depreciation of the assets, and adjust the value according to any increase in value due to fluctuations in the market.
Alternatively, there is the market approach to business valuation which is commonly used. With this method, the value of the business is based on the earning capacity of the business. It looks to the amount an outside buyer would pay for the business.
Family Law Attorneys
Divorce and division of the marital assets can have a profound impact on your life post-divorce. The dedicated team at Navarrete & Schwartz is here to explain your legal rights as well as work to protect your best interests. We are proud to serve the residents of Midland, Texas. Contact us today.