Dividing Interests in Family Businesses During Divorce

Family businesses often represent not only a couple’s primary source of income but also their shared legacy. It is not surprising, then, that when people who own all or part of a family company decide to end their marriage, the division of interests in the family business often becomes one of the most complicated and contentious issues. If you or your spouse intend to dissolve your marriage and you have concerns about dividing interests in family businesses during divorce, it is in your best interest to speak with an attorney about what steps you can take to protect your assets as soon as possible. At McClure Law Group, our capable Dallas divorce attorneys have extensive experience addressing the challenges of dividing family businesses in a way that is equitable and lawful. We understand the importance of protecting your financial stability, and if you engage our services, we will help you seek a fair outcome.

Under Texas law, the division of family businesses during divorce falls under the state’s community property framework. According to the Texas Family Code (the Code), property acquired during the marriage is presumed to be community property and is subject to division upon divorce. This includes most businesses that were established or grew in value during the marriage. However, determining whether a business or part of it constitutes separate or community property can be challenging and may require the assistance of a forensic accountant and other financial professionals.

The process of dividing family business interests is often contentious because it requires not only an accurate valuation of the business but also decisions about its future. For instance, one spouse may wish to retain the business, while the other may want to sell it and divide the proceeds. Disputes can arise over the contributions each spouse made to the business, both financially and operationally, as well as over how the business’s success should be weighed in the division of marital assets. These disputes can lead to financial and emotional strain, threatening not only the stability of the business but also the financial futures of both spouses.

Accurately valuing a family business is one of the most critical and complex steps in dividing its interests. Texas law does not prescribe a specific formula for valuation, leaving courts to rely on expert testimony and detailed financial documentation. Determining value often requires examining both tangible and intangible assets, such as real estate, equipment, intellectual property, client lists, and goodwill.

The valuation process must also distinguish between personal goodwill, which is tied to one spouse’s reputation and is typically excluded from the marital estate, and enterprise goodwill, which belongs to the business and may be divided. Disagreements over these distinctions can significantly impact the valuation and division process. Additionally, valuation disputes may arise if one spouse claims that the business’s growth was due to their separate property investment or pre-marital ownership.

Courts in Texas aim to achieve a “just and right” division of community property under the Code. This standard requires consideration of various factors, including the length of the marriage, the financial contributions of each spouse to the marriage, and the future earning potential of both parties. These factors can influence how the court allocates ownership or offsets the value of the business with other marital assets.

The division of family businesses during divorce presents unique challenges that require a sophisticated understanding of Texas family law and financial analysis. If you or your spouse own a family business and are facing divorce, it is essential to consult with an attorney. At McClure Law Group, our knowledgeable Dallas divorce attorneys have the experience and resources needed to help you seek a just outcome, and if you hire us, we will advocate zealously on your behalf. Our main office is in Dallas, and we also have a Collin County office in Plano, where we meet with clients by appointment. We regularly represent individuals in divorce cases in Dallas, Fort Worth, Rockwall, Frisco, McKinney, Irving, Richardson, and Garland. We also assist clients with family law disputes in cities across Dallas, Denton, Collin, Rockwall, Tarrant, and Grayson Counties. You can reach us by calling 214.692.8200 or using our online form to arrange a confidential consultation.