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How business interests are treated during a divorce

On Behalf of | Oct 28, 2015 | Firm News

Texas business owners going through a divorce are sometimes surprised to learn that their companies will be treated in much the same way as any other marital asset. Some entrepreneurs believe that forming a corporation will shield them from property division in the same way that it protects their personal assets from business-related litigation, but this is not the case. However, the date that a business started operating may have an impact on how it is treated during divorce negotiations.

The entire value of businesses that were formed after a marriage will be subject to the rules of property division, but businesses that predate a marriage are treated differently. In these situations, usually only the difference between the current value of the business and its value at the time of the marriage will be divided. Dividing the business presents additional challenges, and judges are often reluctant to order a business sold. This is because businesses are more difficult to appraise than artwork or real estate, and entrepreneurs may rely upon business income to make court-ordered child or spousal support payments.

Judges may find their way out of difficult situations involving marital business assets by awarding the company to one spouse and making adjustments in return. These adjustments could involve granting additional assets to the spouse who will not receive part of the business or requiring a cash payment be made to them.

It is not unknown for savvy entrepreneurs to allow their businesses to struggle during a high-asset divorce only to recover strongly as soon as all of the legal documents have been signed, but such activities may be difficult to conceal from an experienced family law attorney. Attorneys may review financial statements and ledgers for indications of suspicious activity, and they could call upon accountants or auditors to provide expert analysis when needed.