Many Texas residents are nervous about what happens to their assets when they decide to end their marriages. One group of people whose nervousness may be heightened by the prospect of divorce is small business owners. Texas is a community property state, which means that most assets accumulated during the marriage are equally owned by both spouses and are divided in the event of a divorce.
How a Texas court classifies a small business during the proceedings affects how much of it a soon-to-be former spouse could receive from it. If substantial evidence exists to prove that the business was started prior to the marriage, only the increase in value during the marriage may be subject to division. Determining what that amount may be could require both a forensic valuation and a current valuation to determine the value of the business prior to the marriage and its value at the time of the divorce. The difference could be subject to division by the court.
If the business was started during the marriage, the whole value of the business could be divided. How that division occurs depends on numerous factors. Even though an equal ownership is assumed, that does not necessarily mean an equal division. Other assets could offset the value of the business.
Of course, the parties could decide to negotiate their divorce settlement themselves instead of letting the court make the decisions for them. The parties can decide how to fairly divide the entire marital estate, which could allow the business owner to keep 100 percent of the business. The court will more than likely approve any agreement the parties come to provided that it does not leave one spouse at an unfair advantage, violate the law or violate public policy.
Source: Findlaw, “Is Your Small Business Separate or Community Property?“, Le Trinh, May 7, 2017
