Closely Held Businesses and Divorce – Part II

Closely Held Businesses and Divorce – Part I

Business valuation in a divorce

If one of the spouses chooses to buy out the other spouse, or both spouses agree to sell the business altogether, they will need to determine the value of the business. Typically, this is done by a business appraiser who will generally use one of three valuation methods:

  • Income approach – This method places a value on the cash flow and profits using both current as well as historical data.
  • Asset approach – This method determines the value of all assets (both tangible and intangible) of the business.
  • Market approach – This method determines the value of the closely held business usually as a “going concern.” This is usually done by comparing it to similar businesses that have recently sold.

The descriptions of the three (3) valuation methods above are defined at their most basic level. Therefore, it is important to retain a highly qualified expert in the field of business valuation so you can discuss and determine which valuation method would be best for the type of business involved.

Once the value has been determined, the closely held business can be divided or sold as part of the property settlement.

How do you protect assets in a divorce?

All separate property owned by a spouse is property that is not subject to division by the Court in a divorce proceeding. Separate property is usually created in one of the following ways:

  1. it is property owned prior to marriage;
  2. it is property received as an inheritance; or
  3. it is property received as a gift.

Therefore, if an interest in a closely held business is deemed by the trial court under Texas law to be separate property, then it is not subject to division in a Texas divorce proceeding. However, the fact that a closely held business is the separate property of one of the spouses would in probability have a major impact on how the community property is divided between the spouses in a divorce proceeding.

The execution of a pre-marital or post-marital agreement is another way to protect a closely held business and its assets. As a result, the best way to ensure that your assets are protected in a divorce is to hire a good attorney who will look after your best interests.

If you are going through a divorce and want to protect your interest in a closely held business, you need an attorney who has a proven track record with the knowledge and experience to represent you and protect your rights. You need Geary, Porter & Donovan, P.C. by your side. Call today to schedule a consultation and get the representation you need.

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