What Happens to a Jointly Owned Company in a Divorce?

Divorce can be an emotional rollercoaster. One of the hardest parts about a divorce, aside from determining child custody, is the division of assets. It can be especially hard if you and your spouse co-own a company in Texas. You may wonder what will happen to the business in a divorce.

Here, we’ll discuss what your options are. We’ll also explain how your Woodlands divorce attorney will determine the value of your business.

How Is a Jointly Owned Business in Texas Handled in a Divorce?

Like it or not, a jointly owned company in Texas will be considered marital property. Barring any agreement to the contrary, it will be treated like any other marital property.

What will happen is the judge will look at the value of the business and find a way to divide it fairly between you and your spouse. However, there are situations in which the court may order the business to be sold and the proceeds to be divided between the spouses.

If this happens, the court will appoint a neutral third party to oversee the business’s sale and ensure that it is done fairly. The proceeds will then be divided between you and your spouse.

Typically, it all comes down to whether the two parties can work out a fair marital settlement agreement through their lawyers. If they can, there’s a good chance they’ll be able to avoid selling the business in a divorce.

Are There Things You Can Do to Avoid Having Your Business Sold?

There are a few ways things you can do to avoid having to sell a business if you and your spouse get divorced. The two of you could agree in advance that the business will not be part of the marital property division. This can be done through a prenuptial or postnuptial agreement.

Another way to keep your business out of a divorce is to have it set up as a separate entity, such as an LLC. If you do this, each of you will own a separate part of the business. This would allow the two of you to continue to run the business and, if you can tolerate this, nothing will change.

Just keep in mind that if you don’t take the necessary steps, the court will consider it marital property and may order the sale of the business in a divorce.

What Will the Judge Consider When Deciding How to Divide a Business?

If you and your spouse can’t agree on what to do about a jointly owned company, the court will step in. Some of the factors they’ll consider when deciding how to divide the business include:

  • The length of the marriage
  • The contribution of each spouse to the business
  • The value of the business
  • The needs of each spouse after the divorce
  • The desires of each of spouse regarding the business
  • If the two parties can continue to run the business together

if you run a business with your spouse it is treated as marital property

What Are the Three Methods of Determining the Value of Your Business?

From a practical standpoint, you’ll need help deciding how much the business is worth. You’ll also need help selling it if that’s what you’re ordered to do.

The value of the business will need to be determined first. There are three ways to do this.

  • The Income Approach: Here, the value of the business is determined based on the company’s projected revenue. Your forensic accountant would estimate this revenue and then subtract any anticipated expenses.
  • The Asset Approach: With the asset approach, you would determine the total value of your company’s assets and then subtract the total debts.
  • The Market Approach: Here, your Woodlands divorce attorney would look at the value of other comparable businesses in the same region.

Your Woodlands divorce attorney can help you decide which approach will work best.

Factors That Impact If You Sell or Keep a Business in a Divorce

It’s rarely the case that both spouses agree on how they should divide their jointly owned company in a divorce. There are several factors that can impact what happens to the business.

First, if you and your spouse own the business equally, it may be easier to just split the assets. Each party would keep his or her portion of the business.

However, if one spouse owns a larger share of the business, the court may order that the business be sold, and the proceeds divided based on each spouse’s ownership interest.

Another factor that can impact whether a couple sells their jointly owned company is whether either spouse wants to continue running it. If neither is interested in running the business, it makes sense to sell it and split the net proceeds.

If you want to keep the business open but your spouse wants to get rid of it, you can always offer to buy them out of their interest.

Are There Alternatives to Selling Your Jointly Owned Company?

If you don’t want to sell the jointly owned business, there are other scenarios that your Woodlands divorce attorney can present that may work best for both you and your soon-to-be ex-spouse.

One option is to buy out your spouse’s interest in the business. You can do this via a formal buyout agreement, or you can simply include the terms in your marital property settlement.

If your spouse refuses to agree on terms, you can request that the court order that you keep the business in the final divorce.

You can always choose to continue running the business together after the divorce. Your Woodlands divorce attorney can draft a post-divorce operating agreement that outlines how the business will be run and how decisions will be made.

Call a Woodlands Divorce Attorney Today

It may be hard to figure out what to do with your jointly owned business when you divorce. We suggest that you contact an experienced divorce lawyer in the Woodlands, Texas for help. Your attorney can negotiate a marital settlement agreement with your spouse’s lawyer and will protect your interests during this difficult time.

Don’t wait to seek experienced legal representation for your divorce. Call our office at 281-351-7897 today.

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Bolton Law, led by board-certified lawyer Ruby Bolton, handles all types of divorce and family law matters.

With decades of combined experience, our team will work tirelessly to get you the outcome you deserve.