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What Is the Importance of Business Valuations in Divorce

Community Property Principles in Property Division

In the United States, dividing marital property in divorce cases may follow either equitable distribution rules or community property principles. The community property system of dividing marital assets came from European countries who established colonies in North American throughout the pre-revolutionary centuries, such as France and Spain.

Under Texas law, issues of dividing property upon divorce are governed by community property principles. Accordingly, both spouses have an ownership interest in community property assets upon divorce. Community property is defined as all property and assets that are acquired during marriage that does not constitute separate property. For example, a car purchased while the parties were married is likely to qualify as community property. All property that party owns at the time of divorce is legally presumed to be community property.

Conversely, all property that a party receives before marriage or after divorce is considered to be their sole and separate property. Furthermore, property that a party acquires solely in their name through gift, bequest, or devise is considered to be their separate property as well. As a corollary to the community property presumption, the parties have the burden of proving that a certain asset is separate property rather than community property.

Business Valuation Principles Relevant to Property Division

Upon divorce, both spouses are presumed to have a community property interest in an existing business. For example, if you own a small business at the time of your divorce, the law presumes that your spouse has an interest in that business. Assuming that you and your spouse are entirely against owning operating the business together as partners, whoever ends up with full ownership rights to the company must buy out their spouse’s rights. This procedure is essentially the same as when a partner buys out another business partner.

However, if you owned that business since before you were married and were solely responsible for operating and growing it, being required to buy out your spouse’s interest would be unfair. However, you must submit proof that you created or otherwise acquired the business before you were married to ensure the court does not order a buyout.

Significantly, a party may nevertheless be entitled to some level of ownership over what would otherwise be a separate property business if they contributed effort or funds to the business’ growth. As a result, the process of defining and distinguishing the parties’ respective interests in the business becomes exponentially more complicated.

Given the time component for distinguishing between separate property and community property, the following business valuation issues are important points of litigation in divorce cases:

  • The time valuation of business assets and capital
  • Calculating the book value of a business as a whole
  • Establishing the fair market value of a business
  • Tracing business growth to the parties’ contributions

Litigating the above issues will invariably require the use of expert assistance and testimony to develop evidence detailing the circumstances that favor your argument. Experienced business appraisers, accountants, and tax specialists are some of the most common professionals who are involved in business valuation issues in divorce cases. Therefore, it is crucial for you to find an attorney with an extensive network of capable and reputable professionals when it comes to dividing your business upon divorce.

Call O’Neil Wysocki, P.C. for Legal Advice

If you are going through a divorce that involves the division of a business, it is in your best interests to consult an experienced attorney for legal representation. At O’Neil Wysocki, P.C., our legal team has experience with complex, high-asset divorce cases, such as those involving a business.

For quality legal representation, call O’Neil Wysocki, P.C. at (972) 852-8000 or contact us online today.