Picture of Attorney Daniella Lyttle

What Happens to a Business During a Texas Divorce?

FAQ’s about Dividing a Business During a Divorce

Under Texas law, all assets acquired during a marriage are treated as community property—owned equally by both spouses, and divided equally between the two during a divorce. Property owned by either spouse before the marriage is considered separate property.

These distinctions are important when figuring out what to do when you or your spouse own a business. Not surprisingly, businesses usually get attacked by both parties’ lawyers when it comes to property division. Who owns the business? What is the character of the business? Who is entitled to what part of the business?

What is the Valuation Process?

This is where valuation comes in. It’s essentially a process of determining the value of the business and what you and your spouse can receive in a divorce, leveraging historical data to determine how much the business is worth using the following value systems.

a. Fair Market Value

As stated in Chapter. 7-A, Section 5.2 of the Texas Family Code, fair market value (FMV) is the price the property will bring when it is offered for sale by someone who wants to sell the property and someone who wants to buy it.

Ch. 7-A, §5.2 further notes that if a property does not have an FMV, it can be valued using its intrinsic value.

b. Intrinsic Value

As per Rosenfield v. White, 267 S.W.2d 596, 601, the intrinsic value, or actual, is the actual monetary value of the property’s use to the owner, excluding any fanciful or sentimental consideration.

Note that the fair market value of a property should not be confused with its intrinsic value.

FMV is usually hypothetical. In contrast, intrinsic value is determined after both buyer and seller have negotiated its value. These negotiations rarely happen during a divorce, which is why determining FMV is usually the more convenient option. The trade-off is that FMV is not always accurate, while intrinsic value usually is.

c. Value to the Owner

A valuation can also look at the company’s intangible value to the owner, based on factors such as:

  • Its workforce
  • Its operating assets
  • Its systems and organizational structure
  • Its processes

As with the intrinsic value approach, looking at a property’s value to the owner is an option only when FMV cannot be determined.

d. Book Value

Last but not least is the book value system, which means looking at the company’s assets minus the liabilities. Book value is rarely used as a lone valuation option, as it does not capture the potential of the business.

What Valuation Methods can be Used in a Divorce?

During a divorce, each party can use any valuation method deemed effective. These methods include, but are not limited to:

  • Excess earnings
  • Adjusted net asset
  • Rule of thumb
  • Discounted earnings
  • Market approaches
What Business Documents and Information Will an Appraiser Need?

The valuation of a business during a divorce is usually done in court. You can and should hire a Texas divorce lawyer and an appraiser or forensic accountant, who will request records such as:

  • A detailed history and description of the business, its organization, market, products, services, workforce, customers, and suppliers
  • Original purchase documents
  • Balance sheets
  • Company tax returns
  • Financial statements
  • Financial forecasts
  • General ledger reports
  • Buy and sell contracts
  • Partnership agreements
  • History of litigation
  • Payroll data
  • Market research studies
  • Loan applications

Dividing a business during a divorce is hardly a cut and dry process, often requiring a combination of valuation systems and methods. If are going through a divorce and need an appraisal of your finances and resources, schedule a consultation with Texas family law attorney Daniella Lyttle of the Lyttle Law Firm today to find out how we can help you.

Client Reviews
"Before finding you, I had contracted three different lawyers. You were able to quickly resolve and settle a case that I thought was impossible for settle. Because of your expertise and your professionalism, I was able to save thousands of dollars that I can now dedicate to my family. You were sharp, creative, and a strong advocate for me and my family in the Courtroom and in negotiations with the opposing side. Thank you so much for the work that you do!" T.F.
"Daniella, you helped me during the darkest and most difficult time in my life. You were always honest, gave me realistic expectations, and you were prepared for anything in the Courtroom and out of the Courtroom. I will be forever grateful for what you did for me and my children. Because of you, I feel that I got a settlement that will put me on the right path for this next chapter of my life as a divorced parent. Thank you and your wonderful team! you all are great!" A.R.
"Ms. Lyttle's name was given to me by a mutual friend who described Ms. Lyttle as an intelligent lawyer with an athlete's competitive spirit. Ms. Lyttle was a wonderful representative of calm preparedness during what became a lengthy and tenacious divorce litigation. I appreciated her knowledge, her calmness despite the fact that I was very anxuous, and her polite and respectful attitude in the courtroom, and outside of it. Ms. Lyttle helped me to stay focused on the larger picture, and her experience and advice came to me at a time when I was desperate and depended on her. I am glad to report I placed my trust in someone who actually delivered." R.E.
"I have known Ms. Lyttle for more than two years. She has represented me in my divorce and then in my modification/enforcement case in the most proffessional manner. Ms. Lyttle's ethics are of the highest standards. Her friendship , courtesy ,knowledge and honesty have become very important to me during the last two years as she represented me in my family law case. I have recommended Ms. Lyttle to a many friends facing family law matters and I know I can count on Ms. Lyttle should I need her again in the future." A.W.