Running a family business can be an exciting part of building a life together. But when a marriage ends, one big question arises: What happens to the family business?
Under Texas law, many factors go into deciding how to split your shared property. If you own a business, it can be a key asset in that division.
Below, we explore what to expect and what steps you can take to protect your interests. If you need further guidance, Texas family lawyer Justin Cook is here to help.
Is the Family Business Community or Separate Property in Texas?
In Texas, any property acquired during the marriage is typically considered “community property.” That means both spouses share ownership.
On the other hand, property you owned before the marriage or received by gift or inheritance is usually “separate property.” In a divorce, the family business might be presumed community property if it was formed or substantially grown during the marriage.
Proving an asset is your separate property requires “clear and convincing evidence.” This can be a high bar to meet. You might need to show old business formation documents, bank statements, or other records. If you cannot prove that you owned it—or owned a part of it—before the marriage or that it came to you by gift or inheritance, the court will assume it belongs to both spouses.
What Is a “Just and Right” Division?
Texas courts aim for a “just and right” division of the marital estate. This does not always mean an exact 50/50 split. In fact, judges can consider various factors when deciding who gets what.
For instance, courts may look at:
- Each spouse’s earning potential
- Length of the marriage
- Financial needs and obligations
- Any children who still need care
If the judge decides one spouse should keep the business, the other might receive different assets—or even a financial payout—to keep things fair.
How Do Courts Value the Business?
To divide a business fairly, you need to know its worth. Valuation can be tricky. The company’s value is generally set at the date of divorce, according to Handley v. Handley. Courts might look at past earnings, market conditions, and business assets. Sometimes, attorneys bring in professional appraisers or accountants to do a detailed valuation.
When deciding on a value, it is important to consider not just money in the bank but also the “goodwill” of the business. Goodwill is the reputation or relationships that help the company thrive. It can be intangible but still has value in a divorce proceeding.
Can One Spouse Keep the Business?
Often, yes. If one spouse is deeply involved in the company’s daily operations, the court might give ownership to that spouse. However, the other spouse should get something of equal value, such as cash, retirement accounts, or other property. This way, both spouses walk away with a fair share.
Courts have wide discretion here. If one person started the company and has the expertise to run it, awarding the entire business to that spouse may make sense. Still, the judge will want to compensate the other spouse for their share. This sometimes involves a structured payment plan spread over months or years.
What If Both Spouses Want to Continue Running the Business?
Sometimes, divorcing spouses can still co-manage the company peacefully. If that is the case, a court could let both spouses remain owners and run the business together. This can be risky if emotions are high. It requires strong communication, a clear partnership agreement, and a willingness to set aside personal differences for the sake of the company.
If you decide on joint ownership, you will need a well-defined plan for responsibilities, decision-making, and profit distribution. You might even put a clause in your divorce settlement letting one spouse buy out the other if disagreements arise later.
What If You Have a Settlement Agreement?
Divorce can be stressful, and sometimes, it is easier to work out a settlement than to fight things out in court. Boyett v. Boyett shows that when spouses reach a property settlement the court finds fair, it will uphold that agreement. You and your spouse might agree on who keeps the business and how much the other spouse receives. Alternatively, you might arrange for both spouses to remain owners under clear, written terms.
Reaching an agreement on your own can save time, money, and stress. But it is crucial to ensure the deal truly reflects the interests of both parties. If it does, courts usually have no problem approving it.
Does the Court Decide the Value at a Specific Time?
Yes. The value of community assets in a Texas divorce is generally determined on the date the divorce is finalized or at a date close to it. This rule, drawn from Handley v. Handley, helps ensure each spouse gets an accurate share of what the company is worth around the time of the split. If the business is rapidly growing—or shrinking—delaying the divorce could affect the final valuation.
To keep things fair, your lawyer may want to update the business valuation if the process takes a while. If six months or a year passes between your first valuation and your divorce date, you may need a new appraisal.
What If There’s a Dispute Over Control of the Family Business?
When spouses strongly disagree about how to manage or split a family business, the court might step in. The judge can do things like appoint a receiver (a neutral third party) to manage the company until the divorce is settled. This usually happens only in extreme cases where the business or its assets are at risk.
In most cases, spouses can work out a temporary arrangement to keep the business running smoothly. The best approach is to handle disputes early and avoid letting them grow so big that the court must take drastic steps.
Is a “Buyout” an Option if One Spouse Wants to Keep Running the Family Business?
Yes, a buyout is often a practical approach if one spouse wants to keep running the family business. That spouse might “buy out” the other spouse’s share, either with a lump sum or through installments. The idea is to compensate the exiting spouse for their share, similar to dividing any other marital asset. If you choose this path, it is important to base the purchase price on a fair valuation to prevent future disputes.
How Can You Protect Your Interests in a Family Business in Texas?
Below is a list of steps you can consider if a family business is at stake in your Texas divorce:
- Gather all business records: Compile tax returns, financial statements, partnership agreements, and any other documents showing how the company is run and valued.
- Determine ownership interests: Figure out if the business is fully or partly community property, or if some portion is separate property.
- Get a professional valuation: Hire an expert to appraise the business so you know its current market value.
- Consider settlement options: If you and your spouse can agree, you might save time and money by avoiding a courtroom battle.
- Seek experienced legal help from a Texas family lawyer: A lawyer familiar with both family law and business issues can guide you through the process and protect your rights.
Will the Court Enforce the Division of the Business?
Yes. Once a judge signs off on the property division, both parties must follow it. The court also has the power to enforce the property split through additional orders, if needed. This might mean clarifying terms or taking action if one spouse refuses to hand over records or assets.
If problems come up after the divorce—like one spouse not paying buyout installments—there are legal options to enforce the order. The key is to have clear terms in your final decree, so everyone knows exactly what to do.
Need Help Dividing Your Family Business? Contact The Cook Law Firm & Associates PLLC Today
Figuring out what happens to the family business in a Texas divorce can feel overwhelming. But you do not have to tackle it alone. At The Cook Law Firm & Associates PLLC, we understand both the emotional and financial challenges you face. We will work with you to protect your interests, whether through negotiation or in court.
Call Texas family lawyer Justin Cook at 210-740-0281 or fill out our online contact form to schedule a consultation. Let us help you find a fair solution for your family business, so you can focus on building a secure future.