Divorce lawyer for business owners in Dallas

What happens to a business in a Texas divorce

The court decides two things: whether the business is community or separate property, and what it is worth. Under Texas Family Code § 3.003, property either spouse has during the marriage is presumed community, so a company formed or bought during the marriage is usually community property even if only one spouse owns it on paper.

When the company was started matters. A business you owned before marriage is your separate property under § 3.001, because Texas looks at when the right to the property first arose. The community cannot take your shares, but it may have a reimbursement claim under § 3.402 if community time, toil, talent or effort enhanced the value of your separate business and the community did not receive adequate compensation for it, for example through a reasonable salary. Salary and ordinary distributions paid to you during the marriage are generally community either way.

For an LLC or corporation, the court divides the ownership interest, not the company's assets. The Texas Business Organizations Code says a member has no interest in specific company property, so the building and bank account stay with the LLC. Your spouse does not automatically get "half of your LLC": the court divides the community value in a just-and-right way and usually awards the company to the owner with an offset.

How a private company is valued

A privately owned company is valued by an expert using one or more standard approaches, and Texas courts generally look for its fair market value. The expert reviews tax returns, financial statements, contracts and customer data, then reconciles the results into one value as of a chosen date.

• The income approach: what the company's expected earnings are worth today.
• The market approach: what similar companies have sold for.
• The asset approach: what the company's assets are worth minus its debts.

Goodwill is often the biggest disputed item. Texas courts have long held, starting with Nail v. Nail (Tex. 1972), that personal goodwill tied to the owner's own skill and reputation is not divisible, while enterprise goodwill that exists apart from the owner can be. Separating the two can change the value a great deal, especially for professional practices and owner-run firms.

A business valuation expert is not required by law, but when the company is a large part of the estate, it is hard to reach a fair result without one. The guide on business valuation covers the details.

Keeping the business in one piece

You do not usually have to sell your business to pay your spouse. Texas courts can award the whole company to the spouse who runs it and give the other spouse other community property of equal value, a money judgment or payments over time.

• Offset: the owner keeps the company; the other spouse receives more of the house, investments or retirement accounts.
• Cash settlement: the owner pays the other spouse's share, sometimes with a note secured by the business or other property.
• Structured payout: payments over time, with security and default terms written into the decree.

A divorce attorney cannot always prevent a company's value from being divided, but can often prevent the company itself from being split, by negotiating an offset or buyout and by keeping ownership and control with the operating spouse. Real protection is planned in advance: a prenuptial or postnuptial agreement, a partition agreement under Texas Family Code § 4.102, clean records and a buy-sell agreement among owners.

Settling a business dispute without a trial

If your spouse says the company is worth more than it really is, the answer is your own expert's review of that number, and a tested gap is often settled without a trial. An owner can also negotiate a larger cash payment or more of other assets in place of giving up shares. Most business disputes in a divorce come down to those two numbers: what the company is worth and how the other spouse will be paid for the community share. Once each side's valuation has been tested, the gap is often narrow enough to settle in mediation, where the spouses can agree on payment terms a court would not design on its own.

John has resolved hundreds of family law cases in mediation, as an attorney or as the mediator, and is trained in collaborative law. A collaborative process can suit owners who want to keep company information private and work with one shared financial expert.

How John helps business owners and their spouses

A good divorce attorney for a business owner understands entity structures, works comfortably with valuation experts and forensic accountants, and knows how to protect a company's operations while the case goes on. John B. Polk is a Dallas family law attorney with more than 25 years of practice who represents both owners and the spouses of owners.

• Characterizing each entity and interest as community, separate or mixed, with tracing where needed.
• Choosing and working with valuation experts, forensic accountants, CPAs and tax advisors.
• Testing the other side's valuation: assumptions, goodwill, discounts and owner compensation.
• Protecting confidential company records with protective orders.
• Negotiating offsets, buyouts and payment terms that the business can carry.

He prepares every litigated case as if it will go to trial while exploring settlement through negotiation, mediation, collaborative law, arbitration or trial. See also property division and homes, retirement and investments, or contact John to talk about your company.