Divorce Advice for Business Owners & Professionals
Industry Leading Counsel From Houston Divorce & Business Lawyers
When divorce cases involve ownership of a business or a professional practice, experienced counsel and representation become vital to navigating complex issues of property division.
- Proper valuation of your business
- Determining the characterization of the business as separate or community property
- Tailoring legal strategies to the unique issues involved
- Pursuing resolutions that protect your rights and interests
As recognized leaders in both family law and business law, our legal team at Hendershot, Cannon & Hisey, P.C. is equipped with the breadth of knowledge to help clients navigate the challenging issues inherent to dissolving a marriage when business ownership and professional practices are involved- whether that involves negotiating an equitable settlement agreement, or aggressively litigating when necessary.
Divorce Advice for Business Owners & Professionals - Resolutions To Ownership Issues
Whether you own a business or professional practice, are the spouse of a business owner or professional, or share ownership of a closely held business with your spouse, you will need to establish objectives with reasonable expectations.
Although every case is unique and outcomes vary, there are generally three ways to resolve ownership issues:
- Co-ownership – Co-ownership allows both spouses to continue owning a business together after the divorce, provided they wish to do so and can remain amicable. Often this will entail a realignment of business responsibilities that reflect new roles in ownership and operational structure of the business. Continued co-ownership is often not a reasonable or viable solution for divorcing partners, especially if they wish to move on and apart.
- Sell and divide – Business owners may choose to sell a business and divide the profits, which they can use to invest in business ventures of their own. This allows for the severance of financial ties to an ex-spouse, but can be a timely and cumbersome process.
- Buy-outs – One spouse is awarded the business, or professional practice (provided they are a licensed professional), and the other will be “bought out” by buying the other spouse’s community property interest, or negotiating a fair price to be paid by the owner spouse. This can be achieved through payments of cash or liquid assets, or through offsetting the selling spouse’s community property interest through other assets, such as equity in a home, retirement accounts, securities, or structured settlement.
Business Valuation and Divorce
When it comes to valuation, each type of business structure offers its own particular challenges and opportunities in divorce:
- Family Businesses – Whether you intend to pursue co-ownership of a family business after divorce or not, it is important to value your individual interests so the business can be included in your property settlement. Valuing a business, in addition to determining community and separate property interests, is a complex task which can be handled through various methods, including estimating value by comparing similar businesses (market approach), calculating past and current profits (income approach), and evaluating assets and liability (asset approach). Valuing community components in separate property businesses is also critical to determining each party’s interests in the business.
- Goodwill & Income Projections – Valuation of a business or practice in a divorce can involve intangibles. Projections of profits or losses are not the sole factor, given the goodwill (both personal and commercial) that a business may have built up and the potential upside in a given industry. These intangibles include factors such as recurrent and referral business, reputation, and legacy, and they can be critical issues when a professional practice is involved.
- Appreciation – When one spouse already owned a business at the time of the marriage, it can be challenging to determine how much of the appreciation in value (earned during the course of a marriage) is considered community property subject to division.
- Financing Issues – In some cases, dividing interests in a small business includes allocation of debts and obligations to repay loans or fulfill other financial commitments. These commitments may be loans from the Small Business Administration or other lenders. It may also be a matter of resolving the status of lines of credit, personal guarantees, or working capital.
Division of the value of a business or professional practice depends on their size and structure, as well as the unique aspects inherent to their value and according to what is considered separate property and community property under Texas law. From simple mom-and pop stores organized to elaborately arranged limited partnerships and limited liability companies (LLCs), your interests must be characterized and valued by an independent professional.
Professional Practices: Seeking the Right Solution for Your Situation
During divorce, the professional practice will be subject to division. Because part ownership cannot be given to a spouse who is not licensed to practice in that field, issues of division largely depend on how the practice is structured and the professional spouse’s ownership role. As with other businesses, there are basic structural differences between traditional partnerships and entities such as PLLCs, which are now widely used among professionals.
In many cases, a spouse’s right to a professional practice is resolved through a buy-out of the non-practicing spouse’s interest in the value of the practice, which can be complex when elements such as goodwill are considered. Based on the unique details of your case and preference of both parties, creative solutions can be reached to ensure equitable division without harming the practice. This may include, among other things, using contractual alimony or shares of other community property to buy out an interest.
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With the ability to leverage our insight as business and family law attorneys, we can effectively and creatively address issues involving valuation, community and separate property, and the most appropriate methods for equitable distribution, including settlement agreements negotiated through mediations, or hard-fought resolutions secured through focused and aggressive litigation. As resolutions secured in these matters leave the future of businesses, practices, and individuals in balance, there is no substitute for experienced counsel and preparation.
Speak personally with a member of Hendershot, Cannon & Hisey, P.C. Call (713) 909-7323 or complete this form 24/7 for an initial consultation.