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Divorce and your family business

As a high-asset Texas couple who own a family business or professional practice, it likely represents your largest asset and your major, if not only, income source. Consequently, if you and your spouse are contemplating divorce, both of you likely are greatly concerned about how to fairly and equitably divide this asset between you.

Generally, you have the following three options when it comes to your business vis a vis your divorce:

  1. Sell it and divide the profits
  2. One of you buy out the other’s interest
  3. Continue owning it together

As you might expect, each of these choices has advantages and disadvantages. Consequently, deciding which option works best for you and your spouse will become a major negotiating point in your property settlement discussions.

Sale

If neither of you is overly tied to your business or professional practice and both of you wish to move on to new endeavors and challenges, a sale may be your best all-around option. Assuming the business sells quickly, it will generate the cash you both need to pursue your respective post-divorce interests.

The main negative of a sale is that you must determine the value of your business and a realistic sale price. In all likelihood, neither of you has the requisite knowledge or skill, not to mention objectivity, to do this yourself. Therefore you will need to hire a professional business evaluator. This can be quite expensive and take quite a while depending on the size and complexity of your business. It is, nevertheless, the only way to objectively establish both its value as an ongoing business and therefore its sale price.

Buyout

A buyout usually is the best option if one of you is the professional whose practice it is and (s)he wishes to continue practicing. As with a sale, however, if you and your spouse cannot agree on the value of your respective interests, you will need to hire a professional evaluator. Once you arrive at the amount of the departing spouse’s interest, then the remaining spouse must come up with that amount, possibly by one of the following three methods:

  1. Trading it for other marital property of equal value
  2. Acquiring a partner or other source of investment capital
  3. Obtaining a property settlement note so as to pay the leaving spouse over time with interest

Continued joint ownership

It may surprise you to learn that many couples continue to successfully own and operate their family business together after their divorce. Whether or not you and your spouse can do likewise depends on the extent to which you can separate your personal lives from your business lives. If you both feel you can continue to work together even though you cannot continue to live together, post-divorce joint ownership likely is the best option for your business per se. Not only does the business not need to be valued, its operations continue without interruption.

If you and your spouse choose this option, however, experts recommend that you draft a written contract in which you agree on which of you will perform which business duties. In addition, you should insert a clause regarding a future buyout price or percentage should your joint ownership become unfeasible in the future.

Divorce is never easy for either spouse. Adding your family business into your mix of issues only complicates an already potentially complicated and acrimonious situation. Both of you need to keep your emotions in check and deal with each other as clearheadedly as possible.

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