What Happens to a Business in a Divorce?

In the United States, for decades the divorce rate has leveled around 50 percent. This means that 5 out of every 10 marriages will end in divorce. Unfortunately, the divorce rates are even higher for each subsequent divorce.

Setting the national divorce rate aside, divorce requires individuals to identify separate versus marital property, which is called “community property” in Texas. Separate property includes all assets acquired before the marriage, but it also includes gifts and inheritances received in one spouse’s name during the marriage. Separate property is generally not subject to division.

Community or marital property on the other hand, is subject to division and it includes all property acquired by either spouse during the course of the marriage. So, what about a business owned by one spouse alone? Is a business considered community property?

Dividing a Business in a Divorce

In many cases, a business is considered community property in a divorce, which means both spouses have a 50 percent interest in the business. This is true if the business was created after the marriage, and it is true even if one spouse did not work in the business.

Essentially, the business is treated like any other marital asset and is therefore subject to division in most cases. If a business is classified as “marital or community property,” the couple generally has three options for dividing the business:

A buy out. In this scenario, the spouse who wishes to keep the business buys their spouse’s interest in the business.
The spouses decide not to distribute the business. Instead, they continue to jointly own the business, even after the divorce is final.
The couple sells the business and split the profits.

Do you have questions about a business that was started before the marriage, but the other spouse worked in the business, which contributed to its increased value? In this case, the analysis may be more complicated. Since each couple’s situation is unique, we do not have a “one size fits all” answer that can be explained here. To learn more, don’t hesitate to contact us today.