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Family Law Attorney FAQs: How Is a Business Divided During a Divorce?

Sep 22, 2021 | Divorce, Premarital and Postmarital Agreements, Property Division

Filing for divorce is hard enough when you are trying to decide who keeps the house or who gets custody of the kids, but when you add in a business, the financial aspect of a divorce can quickly become very complicated. Part of filing for divorce means fairly separating all shared assets and debts, which can be complicated for business owners. Fortunately, good legal guidance from family law attorneys in Houston, TX can make this process very simple for everyone involved.

Family Law Attorney FAQs: How Is a Business Divided During a Divorce?

1. How Can You Divide Assets Fairly?

Dividing assets fairly is a process that will involve examining all the property and debts you and your spouse own separately and together. This is generally easy to figure out based on whose name is attached to the asset or debt; if both spouses have signed on an asset, then it is generally considered a shared asset, which is likely what will need to be divided during divorce proceedings.

Assets can refer to any number of owned properties or debts that have financial value. This can include your home, vehicles, other properties, mortgage debt, consumer debt, business loans, retirement accounts, investment accounts, heirlooms, and business holdings – including family businesses. This extensive list of assets will need to be examined to determine who has the most claim on each piece of property. Then, the assets will be outlined and divided as part of your divorce paperwork.

2. What If Assets Are Destroyed?

Unfortunately, it’s not uncommon for one spouse to try to destroy any assets to prevent the other spouse from claiming them. Hiding or destroying assets, such as hidden property, offshore accounts, and other assets, are all considered illegal. If it is discovered that a spouse is hiding assets or has destroyed assets during a divorce, that spouse may face steep monetary fines or even a charge of perjury. The court can also order you to report all assets and financial information.

If assets have been damaged, destroyed, or wastefully distributed to prevent a spouse from dividing the asset fairly, there are legal precedents to hold the other party accountable for these losses. Depending on your case and the judge, the court may decide to be more generous with your division of property if your spouse has made efforts to hide assets in your case.

3. What Happens to the Business During Divorce?

During a divorce, the goal is to divide the assets of a business fairly. However, some factors may determine your ex-spouse is not entitled to your business holdings. In fact, there are two different classifications for business owners to be aware of: community property, which is claimed by both spouses, and separate property, which can be proven to be an asset owned by one spouse.

This classification will generally determine whether or not you will remain the owner of your business or whether you will owe your spouse part of the value for the asset. In a contentious divorce, the court may step in to divide this asset fairly according to legal precedents.

4. How Is a Business Categorized?

The court will look at several facts regarding the business to determine if the business is community property or separate property. For example, the court will want to know when the business was started and who started it. A business started by one spouse before the marriage will likely remain separate property, while a business started by both spouses before or during the marriage is more likely to be considered community property.

Ownership of the business and business holdings is also important. If only one spouse’s name is on business information and tax filings, then it’s much easier to determine who the primary or sole owner of the business is. On the other hand, if both spouses were involved in paperwork, business holdings, and tax information, the business may be viewed as community property.

5. What If There Was a Premarital Agreement?

A prenup agreement may divide business during a divorce much easier to determine. If your premarital agreement includes a clause that your spouse will have no claims to the business, then when you get divorced, your business will be considered your asset.

However, this division may be a little murky if you or your spouse were found to have violated the premarital agreement. In this case, the court may have to step in and determine whether or not this violation of the prenup voids the part of the agreement that protects the sole ownership of the business and its assets.

6. What If Shared Assets Were Used for the Business?

Not all businesses thrive all the time. There are instances where business owners have to use additional capital to support the business during harder times. For example, it’s not uncommon for business owners to take out a second mortgage on a home to use as capital for a business. If this is the case, then the division of the business will not be as clean-cut.

If a joint account or a joint asset is used for business capital, then the court may decide that these shared marital assets mean both spouses have a claim to the business. It may also be the case that using marital assets will mean your ex-spouse will be able to file a reimbursement claim instead of claiming the business as an asset.

7. How Do You Divide the Value of a Business?

In the case where both spouses have an equal entitlement to the business and its assets, part of your divorce proceedings will include dividing the value of the business. There are several ways this can be done, such as selling the business and sharing the profits or buying your spouse’s share of the business to gain full ownership of the business. Your family law attorneys will help you explore the best options for your particular circumstances.

8. Is Dividing the Value of a Business Fair?

Yes, dividing the value of your business can and should be a fair process. The goal of your divorce is to fairly divide all assets between the spouses. The court will ensure that each spouse is awarded a fair share of assets through settlements and property division.

It’s sometimes the case that your ex-spouse may want to have a settlement for their portion of a business rather than fight for the rights to own the business themselves. No matter what happens, you can count on the division of your assets to be equal when you trust experienced family law attorneys.

9. Can You Settle Outside of Court?

Yes, it’s possible to settle the division of a business outside of court. In fact, this is usually the goal of more divorces since litigation can take much longer than a simple divorce settlement outside of court. Your legal team and your spouse’s legal representative will work closely together to analyze your assets to find a fair division that works for both parties.

Business owners face an extra challenge when they file for divorce. But with experienced family law attorneys, you can easily divide the value of your business outside of court. For more information about how family law attorneys can help with your divorce, contact Skillern Firm in Houston, TX today.

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