Ownership of a family business gives rise to complications in divorce. What happens to a family business during a divorce? How is the family business divided between the husband and wife?
While a complete answer to this question depends on many factors, there are two main issues that arise – valuation and division.
First, the court has to determine the value of the business. Courts in Texas use a market value approach, but even that is not the complete answer, because divorce courts in Texas require that the personal goodwill of the spouse who runs the business to be excluded from that value. So, the value of a family business is the market value minus the value of the personal goodwill of the spouse.
This means that small businesses, medical and law practices, and the like, that depend primarily on the reputation of the owner will often have little value in a divorce.
But if the family business has value beyond the personal goodwill of the spouse, then the court must determine what to do with it. Courts generally award the business to the person who is most central to the operation of that business. The court will “even it up” by awarding the other party items of other property, cash, etc. that are equivalent in value.