Getting Divorced As a Business Owner in Texas

Austin Divorce Attorney Explains the Process

Video Transcript:

Jimmy Vaught: 

There's really no other way other than somebody buying the other person out or, I guess, the other possibility would be selling the business and then splitting the proceeds.

Molly Hendrickson: 

If you're a business owner and going through a divorce, what do you need to know? We're gonna talk to attorney Jimmy Vaught about that on today's Ask The Lawyer. Jimmy, thanks for joining us.

Jimmy Vaught: 

Thank you. I'm glad to join you.

Molly Hendrickson: 

So in your experience as a family law attorney, do you see a lot of divorcing spouses where a small or closely-held business is an asset in the proceedings?

Jimmy Vaught: 

We see that pretty frequently, quite frankly. We also see some big companies, but small businesses and closely-held companies, we do see quite a few of.

Molly Hendrickson: 

So are businesses community property in Texas or separate property, and who determines what is separate property versus community or even marital property?

Jimmy Vaught: 

Well, it all depends on when the company was formed. Because under Texas law, if anything is formed before marriage, it is considered separate property under the inception of title concept and then but if it's formed during the marriage, then it's gonna be considered community property.

Molly Hendrickson: 

So if a business is determined to be separate property, can the other spouse still claim it in the proceedings?

Jimmy Vaught: 

Well, they can claim it, but they won't be successful. [laughter]

Molly Hendrickson: 

What if the non-owner spouse worked for the business, does that change things at all?

Jimmy Vaught: 

It really doesn't. Like I said, the court's gonna look at when the title incepted for the business and if it formed before the marriage, it's gonna be separate property.

Molly Hendrickson: 

And how might a business that's determined to be separate property affect the division of other assets? Or does it?

Jimmy Vaught: 

Well, it can because in Texas the property is divided using a just and right, just and fair, or just and right division. And so let's say, for example, that the small business was a significant amount of the estate, and let's say, for example, the husband's gonna get the separate property business, the court can actually allocate the other assets to sort of offset that somewhat not 100%, but at least to sort of help out the other spouse.

Molly Hendrickson: 

And what about a property that's determined to be community property, does one person always have to buy out the other person? Can it be split up in other ways?

Jimmy Vaught: 

[laughter] Well, that's an interesting question. The easiest way, let's say, particularly for a small business, is for one person to buy out the other party. Occasionally, we have people who they're gonna operate the business together. I don't usually recommend that just 'cause I think that it's just not a good idea for a divorcing couple. There's really no other way other than somebody buying the other person out, or I guess the other possibility would be selling the business and then splitting the proceeds.

Molly Hendrickson: 

Ah. And what about how is a business valuation determined to determine its worth?

Jimmy Vaught: 

Well, it depends somewhat on the type of business, and there's three methods for valuation. There's the income method. There's the asset method. And then the market value method. And depending on the business, some or all those may be appropriate in determining the value of the business. However, you also had things you need, particularly with a closely-held business is, when you use the market value model or approach is that it may not be marketable, and so there's usually a discount applied for a lack of marketability.

Molly Hendrickson: 

This is certainly something no business owner wants to go through, but we certainly appreciate your information today and your time.

Jimmy Vaught: 

Sure.

Molly Hendrickson: 

And that's gonna do it for this episode of Ask The Lawyer. My guest has been Jimmy Vaught. If you wanna ask him about your situation, you can call the number on the screen. Thanks for watching. I'm Molly Hendrickson 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.