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Yours, Mine, or Ours?

How married business owners can divorce without losing their investment
A divorce can be as complex or as simple as the spouses together wish for it to be. If both spouses commit to working things out amicably, then their divorce will be less complicated. But when the spouses own a business together, certain factors must be considered first whether the divorce is agreed or contested.

The first issue: Determine if the business is marital property if it is owned by one of the spouses. Just working in the business doesn’t mean it’s a marital asset. If one of the parties owns an interest in a business, then it is probably on the table as part of the divorce process. Sole proprietorships are not separate entities, so this concept applies only to corporations or partnerships.

Second, the ownership interest in the business must be characterized as community property or separate property. Was the business started during the marriage or owned before the marriage? If it was started during the marriage, it is likely community property subject to division in the divorce process. If it was owned before the marriage or obtained through gift or inheritance, then the business is separate property and not a part of the division of assets in the divorce.

If the business is likely community property, then the next step is to place a value on the business. The value is important because at the end of the divorce, the division of property must be “just and right” under Texas law. Having a value on each asset, including a community-property business, is essential to the analysis. This is where most of the complexities arise in dealing with a business in a divorce. First, the “entity theory” stands for the concept that a business is a stand-alone asset that is separate from the owner of the entity. Further, the individual assets belonging to entity are not at issue, only the entity as a whole. “In other words, if a business is a bottle of water, you don’t value the water separately from the empty bottle,” explains O’Neil Wysocki senior shareholder Michelle May O’Neil. “You value the entire bottle of water as one entity.”

“When the spouses own a business together, certain factors must be considered first whether the divorce is agreed or contested.

The value of a business is not just the tangible assets and equipment. There may be value in the intangibles, such as the client list, the business’ goodwill and reputation, and the employees. Much dispute arises in valuing a business entity’s intangible assets because it is largely subjective. “We routinely hire business valuation professionals with special accreditations to perform these calculations,” explains Michael Wysocki, managing shareholder of O’Neil Wysocki, PC in Dallas. “The standards for valuing a business in a Texas divorce, including valuing the intangible assets, differs from the standard for valuing a business for sale. It is important to hire a professional that knows the nuances in the accounting standards and the law in this regard.”

Once all the community property assets, including a business entity, have been identified and valued, the last step in the divorce is the actual division of the assets between the spouses. While Texas starts with presumption of an equal division, a judge may deviate from a purely equal division based in equitable factors to reach a decision that is “just and right” under the law. And, the assets are not each divided equally, but one spouse may be given certain assets and other assets of equal value may be awarded to the other spouse. With a business, generally it can only be awarded to the spouse who is listed as the owner. The other spouse should be awarded other assets to account for the value of the business in the overall division of the assets. Alternatively, sometimes a spouse who receives a business in the division of assets will have to incur a debt to pay out the spouse over time.

Occasionally, spouses co-own a business together during the marriage and wish to continue to operate the business together after the divorce. In these cases, it is a good idea to have an operating agreement to spell out the rules for co-ownership after the divorce to reduce the amount of conflicts.

Anyone who has been involved in a contentious divorce wants an attorney who is willing to get in the arena and fight for them. This is exactly what you get with Best Lawyers Michelle O’Neil and Michael Wysocki. Known as the street fighters of litigation, they try more bench and jury trials than any other family law firm in the state. O’Neil has developed a reputable niche in family law appeals. Her work extends further than appealing to a higher court about what may be deemed an unfair decision in family law courts. She is often called upon by lawyers to co-counsel cases to assist with complex family law matters. She is known for her family law expertise in preparing and presenting motions for summary judgment, drafting trial briefs on special legal issues, creating the court’s charge and attending charge conferences, requesting findings of fact and drafting proposed findings, and preserving appellate error. O’Neil has tried more than 26 family law jury trials and handled more than 75 cases in the Texas appellate courts. Many of her cases have been first impression family law cases. Described by one lawyer as a “lethal combination of sweet-and-salty,” she exudes genuine compassion for her clients’ difficulties, yet she can be relentless when in pursuit of their goals. Having tried cases in over 50 Texas counties as well as countless bench trials and jury trials, Wysocki’s experience in the courtroom knows few rivals. He focuses on family law litigation across the state of Texas, representing men and women in divorce, child custody, and complex property division cases. He believes a family law attorney must possess the skills of a counselor, mentor, negotiator, and litigator. He knows that no two families, children, or cases are alike, and he finds creative ways to solve current problems while preventing future issues. Both O’Neil and Wysocki are Board Certified in Family Law by the Texas Board of Legal Specialization.

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