Can You Keep Your Business in a Divorce?

 Posted on January 29, 2025 in Divorce

For entrepreneurs, divorce can bring several concerns about the future of their business. Will they be able to keep it? How will it be divided? The answers to these common questions depend on how the business is classified and valued during divorce proceedings.

If you are a business owner facing divorce, it is crucial for you to understand how Texas property division laws affect business ownership. A skilled Texas divorce attorney can help protect your interests and guide you through the business valuation process. 

Is Your Business Considered Marital Property?

Texas is a community property state, meaning most assets acquired during marriage are subject to an equal division between spouses in a divorce. Whether your business is considered marital or separate property depends on several factors:

• When the business was started: If it was established before the marriage, it may be considered separate property.

• Contributions during the marriage: A business can become marital property if marital funds or your spouse's efforts helped you grow or support it.

• Prenuptial or postnuptial agreements: These can explicitly classify the business as separate or marital property, which helps determine what happens in a divorce.

How Is a Business Valued During a Divorce?

If your business is considered marital property, you need to get it valued to determine its worth before division. Business valuation is an essential step, as it will impact how assets are divided. Common methods for business valuation include:

• Market approach: This entails comparing your business to similar businesses that have recently been sold.

• Income approach: This involves evaluating the business’s earning potential.

• Asset approach: This is done by determining the value of the business’s assets minus its liabilities

Accurate valuation generally requires the assistance of a financial expert or appraiser. Your attorney can help coordinate with these professionals to ensure fair and accurate valuation.

What Happens to the Business After Valuation?

Once the business’s value is established, several outcomes are possible, such as:

• One spouse keeps the business: The business owner can often retain the business by compensating the other spouse with other marital assets.

• The business is sold and the proceeds are sold: Sometimes, the business may need to be sold, and the profits are split.

• Co-ownership: In rare instances, spouses agree to run the business together after divorce, although this is typically not practical.

How Can You Protect Your Business in a Divorce?

The good news is that there are steps you can take to safeguard your business. First, you can address it in a prenuptial or postnuptial agreement, classifying it as non-marital property. Another good idea is to avoid commingling funds to maintain the business’s separate property status. You can pay yourself a salary to ensure that the business is not solely supporting personal finances. Finally, buy-sell agreements can establish terms for handling the business in the event of a divorce.

Contact a Collin County, TX Divorce Lawyer

If you are a business owner concerned about how your business will be treated in a divorce, a Frisco, TX divorce attorney at The Law Office of Linda Risinger can help. Our team understands the intricacies of property division, business valuation, and entrepreneurship, and we will work to protect your business. Contact The Law Office of Linda Risinger today at 972-294-6533 to schedule a free consultation and discuss how we can guide you through the process.