For entrepreneurs and business owners in Austin, one of the most pressing concerns is what happens to their business equity during a divorce. At Deyerle Silva Smith, PLLC, we know how much work, time, and sacrifice goes into building a business, and how important it is to protect that investment. Our team is here to guide you through what to expect when business ownership is at stake during a divorce.
How Business Ownership and Equity is Divided in a Divorce in Austin
Texas is a community property state, meaning most assets acquired during the marriage, including business equity, are presumed to be jointly owned by both spouses. However, whether your business or business equity is considered separate or community property depends on when and how it was acquired.
- Separate Property: If you started or acquired your business before marriage, it may be classified as separate property. However, if the business appreciated in value during the marriage or if marital funds were used to support it, the increase in growth could be considered community property.
- Community Property: If you founded the business during the marriage, it’s likely that the equity will be classified as community property and subject to division.
Determining what portion of your business could be considered separate versus community property can help you better prepare for negotiations during a divorce in Austin.
Factors Austin Courts Consider When Dividing Business Equity
If your divorce goes to court in Austin, the judge will evaluate several factors before dividing business equity, including:
- When the Business Was Started: The timing can help establish whether the business is separate or community property.
- How the Business Was Funded: If marital funds or joint credit was used to grow the business, the court may consider the business a community asset.
- Contribution of Each Spouse: Even if only one spouse actively worked in the business, the other’s support (such as staying home with children) can be a factor in the division of business.
- Valuation of the Business: Determining the value of business equity typically requires expert valuation to assess the fair market value. This valuation will also assess the portion of the value that is attributable to a spouse’s personal goodwill, which is that spouse’s separate property. Personal goodwill is the value of the business due to a person’s reputation, relationships, specialized skills, etc. and is characterized as that person’s separate property in a divorce proceeding.Spousal Agreements: If a prenuptial or postnuptial agreement addresses the business, it can also influence the outcome.
Ultimately, the courts in Austin aim for a “just and right” division, which does not always mean a 50/50 split of the business.
Common Challenges in Dividing Business Equity
Handling business equity in an Austin divorce isn’t always straightforward. Here are a few common challenges:
- Co-Ownership Post-Divorce: Some spouses may end up co-owning the business after divorce, which can be complicated and contentious.
- Forced Sale: In some cases, the business may need to be sold in order to fairly divide the business equity.
- Impact on Business Operations: Divorce proceedings can distract from daily business operations and affect the company’s performance.
- Cash Flow Issues: One spouse may need to “buy out” the other’s share, creating liquidity concerns.
Anticipating these challenges and preparing in advance can help preserve the stability of your business and its operations during divorce proceedings.
Strategies to Protect Your Business Before and During Divorce
If you are a business owner in Austin facing divorce, you can take proactive steps to protect your business:
- Prenuptial or Postnuptial Agreements: Clearly stating how business equity will be handled in the event of a divorce can save time and reduce conflict.
- Separate Financial Records: Keeping business and personal finances separate can help demonstrate that your business equity should be classified as separate property.
- Fair Compensation: Pay yourself a reasonable salary rather than reinvesting all profits into the business. This can prevent arguments that you artificially depressed marital income to build business value.
- High Involvement: The more involved you are in the business, the more likely it will be awarded to you. This also may increase your personal goodwill in the business, which is your separate property.
Consulting with a qualified divorce attorney in Austin can help you implement these strategies effectively.
Settlement Options for Business Equity
Dividing a business doesn’t always have to end in a court battle. Many couples prefer to reach a settlement outside of court to retain greater control over the outcome. Common settlement options include:
- Buy-Outs: One spouse purchases the other’s interest in the business equity.
- Offsetting Assets: One spouse keeps the business while the other receives other marital assets of equal value.
- Structured Payments: Installment payments over time can allow one spouse to buy out the other without needing immediate liquidity.
Settlement negotiations provide more flexibility and usually result in solutions better tailored to the needs of the business and the parties involved.
Protect Your Business Equity During Divorce in Austin
If you own a business and are considering divorce, it’s wise to have the right legal support to protect your involvement. The decisions you make today can determine whether you retain control of the company you worked so hard to build.
At Deyerle Silva Smith, PLLC, our Austin divorce and family law attorneys are skilled in handling divorces involving businesses. We understand the high stakes involved and are committed to helping you secure the best outcome for your case. Contact us today to schedule a consultation.