A privately owned business can be one of the most difficult assets to evaluate in a Texas divorce because there may be no public market price for the company. The court may need evidence about ownership, income, liabilities, goodwill, and the portion of the business that belongs to the marital estate. Our property division attorneys help clients address business interests as part of the broader property-division process.
First Determine Whether the Business Interest is Community or Separate Property
A business interest acquired before marriage may be separate property, while an ownership interest acquired during marriage may be presumed community property. The analysis depends on when and how the ownership interest was acquired and whether the spouse claiming separate property can trace that interest with clear and convincing evidence.
An increase in the value of a separate-property business does not automatically become community property. However, reimbursement or compensation issues may arise when community resources, time, or money benefited a separate estate under circumstances recognized by Texas law.
Valuation Requires More Than Looking at Revenue
A business valuation may consider earnings, cash flow, assets, liabilities, market data, customer concentration, contracts, and other factors. Common approaches include income-based, market-based, and asset-based methods. The appropriate method depends on the company and the purpose of the valuation.
Financial Records Can Change the Valuation
Tax returns and profit-and-loss statements are important, but they may not tell the whole story. Bank records, payroll, owner distributions, company-paid personal expenses, accounts receivable, debts, and recurring adjustments can affect the analysis. In some cases, a financial expert may normalize compensation or other entries to better understand the company’s economic performance.
Goodwill May Need to Be Separated From the Business Value
Texas law distinguishes personal goodwill tied to an individual professional’s reputation from business value that can exist independently of that person. This distinction can matter for professional practices and closely held companies where a significant portion of revenue depends on one owner’s personal relationships, skill, or reputation.
Commingling Creates Tracing Problems
Mixing separate and community funds does not automatically change the character of every dollar in an account, but it can make tracing more difficult. Clear accounting records can be important when a spouse claims that some part of a business, account, or investment remains separate property.
Business Value Is One Part of the Overall Divorce Estate
After the court determines the character and value of the business interest, that value is considered with the rest of the marital estate. A resolution may involve allocating the business to one spouse and addressing the other spouse’s share through other property or negotiated terms, depending on the facts.
Discuss Business Valuation With Cook Law Firm
If your divorce involves a closely held company, professional practice, or other business interest, Cook Law Firm can review the ownership records and financial issues involved. Contact us online or call 210-740-0281 to schedule a consultation.