Business Division in Divorce

Austin Divorce Lawyer Explains What Business Owners Can Expect

Video Transcript:

Jillian French: 

What is the best way to value this? Is this a small business, is this a large business, is this a sole proprietorship?

Rob Rosenthal: 

Dividing property in a divorce can be tricky any time, but especially if there's a business involved. And what do you need to know? Well, we're gonna find out right now on this episode of Ask The Lawyer. My guest is Austin attorney, Jillian French, with The Vaught Law Firm. Wanna remind you right at the top, if you'd like to ask Jillian any questions about one of your situations, just go to askthelawyers.com, click the button up the top that says Ask A Lawyer, walk you right through the very simple process right there. Or of course, you can always call the phone number you'll see on the screen during our conversation. Jillian, it's good to see you as always. Thank you for helping us out.

Jillian French: 

Thank you for having me.

Rob Rosenthal: 

Let's just take a step back a little bit. In Texas, during a divorce, Jillian, how is property divided?

Jillian French: 

Generally speaking, it's provided in what's called a Just and Right division. Most people automatically think that means a 50-50 division, that is generally where we try to start, and then we start going through, well, what are we dealing with? Are we dealing with a house, are we dealing with financial accounts, are we dealing with perhaps a business? We take all of that into consideration and then we try and figure out what's the most efficient way that we can divide all of these things, do we assign maybe three accounts to one spouse, and then therefore the house to another, the business to one. We go through it that way in trying to figure out what the Just and Right division is.

Rob Rosenthal: 

Got you. So you try to make it simple to start with, but then I'm guessing sometimes people get involved and maybe things don't go so simply. So when there's a business involved, does that complicate things a little bit?

Jillian French: 

It certainly can. It can, because oftentimes, people are not agreeing on what that business value is. It may be that they were certainly agreeing on it before the divorce was filed, and suddenly one person thinks it's worth a lot of money, and one person thinks it's worth little to no money.

Rob Rosenthal: 

So what happens then? How do you overcome that?

Jillian French: 

Well, in some circumstances where it's a rather simple business, and a lot of this is gonna depend on what kind of business are we talking about? Is this a service-based business? Is this an inventory-based business where you're selling a product? Where you'd have a large quantity of inventory as owned by the business at all times? That's gonna be one of the first questions we have to answer, what is this business, what type of business is it? Then we're gonna look at what is the best way to value this? Is this a small business, is this a large business, is this a sole proprietorship, is this a business that has a lot of employees? All of those things are factors to consider to say, "Hey, I think we can just look at perhaps the inventory of this business, because that's really all that it has." And the rest of it is just one person perhaps providing a service, which means the business is all goodwill and therefore doesn't have a lot of what we call saleable value or fair market value. And then if it's a larger business, we may want to bring in a financial expert to do an actual valuation, which is gonna have various options for what kind of approach they're gonna use, they may use an income approach or a different kind of approach to value that business.

Rob Rosenthal: 

And is it possible that both sides are gonna have their own experts? How is that handled?

Jillian French: 

It is possible that both sides may have their own experts. Oftentimes, we will try to reach out to the other attorney and see if we can agree on an expert, as long as there's nothing that we're asking the expert to do that would be a conflict, such as a separate property tracing interest in the business or something like that, where one side is saying, "I think I have a separate property interest" and the other person doesn't. As long as there's no issues like that, then we will try to reach out and say, "Hey, can we just have one person see where this goes, use one valuation and not have the expense of two experts?"

Rob Rosenthal: 

Does it matter, Jillian, when the business started? To say one person in the relationship brought the business into the relationship. Does that matter?

Jillian French: 

It does, it very much does, because we have the idea of separate property, or we have it in our constitution of separate property when the business started, and also what funds were used if the business started during the marriage but was completely funded with separate property funds, that could make a determination that this business is separate property, and therefore it doesn't need to be decided.

Rob Rosenthal: 

And what about finding property, or what about if someone... They feel like, hey, the other partner's not telling everything, they're not being fully upfront about where assets are and that sort of thing? Is that something that your firm can help with?

Jillian French: 

Yeah, so oftentimes, people are concerned about, "Well, I'm not sure if this is the full financial picture of the business," and that is a common concern. I often tell people, look, for the past four years that this was running, they weren't necessarily thinking about divorce, and so if we get the financial documents, you'll see the transfers that are going from one account to another, and if they didn't provide the account that it's going to, then that's what we consider missing funds. And therefore, if you're not gonna account for it, we're gonna say that that's awarded to them, and then you get an equal or equivalent amount or something like that. If it is something... And most of the time nowadays, people have electronic transfers, they are purchasing... Even cryptocurrency, that they are purchasing that, you see the money go out to say, a Robinhood account or a cryptocurrency wallet of some sort, and you're able to see what's going on most of the time. And so as long as you can really sit there and meticulously go through it, either yourself or have a financial expert go through it, you're gonna be able to figure out where the money is.

Rob Rosenthal: Really helpful information as always, Jillian. Thank you for making some time to answer our questions.

Jillian French: 

Thanks.

Rob Rosenthal: 

That's gonna do it for this episode of Ask The lawyer, my guest has been Austin attorney, Jillian French with the The Vaught Law Firm. I'll remind you again, if you'd like to ask Jillian any questions about your situation, go to askthelawyers.com, click the button up the top that says Ask A Lawyer, and it'll walk you through a very simple process to ask your questions. Thanks for watching. I'm Rob Rosenthal for Ask The Lawyers.

Disclaimer: This video is for informational purposes only. In some states, this video may be deemed Attorney Advertising. The choice of lawyer is an important decision that should not be based solely on advertisements.