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What Happens to Our Family Business After Divorce?


Going through divorce also affects the family business. This type of family business could be a small or big business, likely having most of the family members as the shareholders or partners, or it could be a practice of profession or a retail store such as a shop or restaurant.

What makes dealing with the business while going through divorce is the fact that most of the time, the family business is also the family’s main source of income.

In this article, we will briefly discuss the three basic methods of dealing with the business while in the process of divorce:

Continue the Business

Both spouses may opt to continue to own and run the business. Both spouses have worked in the business while being married so there is a good chance that they probably have a better relationship in business than personal. This method does not play well if there is irreconcilable anger between the spouses. That situation makes working together almost impossible and hence, it would not be the best option for both parties and the business.

Sell the Business

When the spouses cannot work together anymore, it is best to sell the business and then divide the proceeds so they can both just start over again. This method is called the partition by sale.

However, most businesses is not easily sold and searching for a buyer of the business can take a while.

Keep in mind that while one of the spouses are trying to find buyers of the business, one of them still has to operate the business. This may not be a comfortable idea for the other spouse because the other will be left in control of the whole business which is owned partially by the other spouse. 

Offsetting a Portion of the Value of the Business with Other Assets

In this situation, one of the spouses buys out whatever the other spouses owned. This method is called the partition in kind method. This method is what most couples going through divorce with a family business usually go for because who would be the best buyer and runner of the business other than the ones who established it? This situation not only benefits the business because of  continuity of ownership but also the spouses will not have to deal with each other anymore.

All of the methods above are under the assumption that both spouses are running the business. 

What Happens if the Business Community Property, Separate Property or both?

When the business started during the marriage, it will be considered community property as a general rule in Texas.

The exception to this is if it can be proven by clear and convincing evidence that the business was funded with the separate property of the spouses. This will be done through tracing.

The situation is more complex if what is involved is a business was initiated by using separate funds. Community money and/or property may also have been used in expanding the operations of the business.

If both spouses had a part in handling the business, their contribution must be determined and considered. Even if the business is proven to be the separate property of one of the spouses, what will be considered as community property is the salary he/she earns from the business.

It is best that you talk to a lawyer to make sure that your interests in the business you also worked so hard on, will not be compromised.

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Mr. Hutton is a Divorce and Custody Lawyer based out of Round Rock, TX. His background is with child psychology at Arizona State University where he received a B.S. in 2006, and he continued this by working with the Children’s Right’s Clinic at the University of Texas School of Law where he received his J.D. in 2009. Throughout his practice, he has been a strong proponent of utilizing modern technology to improve his practice and the representation of his clients. He currently is the technology chair of CAFA of Travis County and is committed to improving and modernizing the practice of law in Texas. If you have any questions you can contact him at timothy.hutton@austintexaslegal.com

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