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Options for a Shared Business During Divorce

It can be ideal to operate a family business together when things are going well in your marriage. Building a business and working every day together can be like a dream come true. However, that dream can quickly fade when co-owner spouses divorce. So if you’re a business owner approaching divorce and wondering what your options for a shared business during a divorce are, keep reading. 

Your Business Will Probably Be Your Biggest Asset 

Not only is your business your most likely biggest marital asset, but it may very well be the primary income source for the both of you. This is a big deal! You must decide if you want to leave it up to the judge to divide this asset or if you and your spouse want to be proactive in making a plan and creating a prenup. 

How Business Assets Are Divided In Divorce In Texas 

Texas is a community property state. If the business was created before the date of marriage, then the business is that spouse’s separate property and isn’t subject to any division during divorce proceedings. If the business was started during the marriage, it’s very likely to be a marital asset. How the asset is divided will depend on different factors, like each spouse’s contribution to the business. Contributions can include indirect things like watching the kids while the other spouse works or hosting events (things that indirectly contribute to the business’s overall success). 

When each party’s business share is decided, these are the general options for diving the asset. The 1st option for a shared business during divorce: 

The First Option for a Shared Business During Divorce: One Party Can Buy Out The Other 

There are two common issues with this option: 

  1. The parties don’t have other liquid assets to use for a buyout
  2. Both parties want to keep the business

It usually works best when one party wants out, takes the money, and the other party has all the funds to pay. Liquidating other marital assets is often used for the value of the payout as well. 

The Second Option: The Business Can Be Sold & Proceeds Divided

In instances where both parties don’t have any other assets of value, selling the business and dividing the proceeds is the usual choice. This can be a tough, saddening decision if you are deeply attached to your business and have to let go of employees

The Third Option: Parties Can Continue To Run Business Together 

An option that rarely works long-term, as most people have a hard time separating business and personal problems. If you and your ex get along great and the divorce is civil, it could be a possible option, especially if both parties can do their share with limited interaction. 

And the Fourth Option: The Business Can Be Closed 

Any assets held by the business are sold and proceeds are used to pay off any remaining debts and any remaining proceeds are divided. 

It can be a rewarding experience to run a business with a spouse but making sure you understand all the facets before starting is a must. If you own a business with your spouse and are looking for help while going through a divorce, reach out to us at The Gilbert Law Office today.