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Options for a business in a divorce

On Behalf of | Mar 27, 2019 | Divorce

Texas couples who are going through a divorce and who are business owners may face a difficult choice to either sell or keep the business. The first step is getting the business appraised.

Once the owners know its value, they may decide to try to sell the business. This has the advantage of allowing each person to move on and perhaps start a new business, but it does not always allow for a straightforward dissolving of financial ties. Since the business might not sell immediately, the couple may still find themselves negotiating about how they will run it in the interim. This could involve one person remaining hands-on while the other person steps aside.

In other situations, one spouse may want to walk away from the business while the other wants to keep running it. Having enough liquid assets to buy out the other spouse can sidestep the tax issue since this is an event that is precipitated by divorce, but many people may lack this liquidity. When this is the case, other options are a settlement note or having the company buy the spouse’s shares although it is important to keep capital gains tax low. For some couples, keeping the business can mean both of them running it, but this requires an unusual degree of post-divorce cooperation and may not be possible.

There could be other complicated situations involving a business and property division in a divorce. For example, if only one person owns and runs the business, the other spouse may still have a claim on it. In Texas, a community property state, all marital assets are supposed to be split equally. If the business owner owned the company prior to the marriage, the value the company has appreciated since the marriage may be the amount that is supposed to be split between the two.