3 Keys to Valuing a Closely Held Business During a Texas Divorce

If you or your spouse own a business, or if you’re partners in a business, then your company will likely play a central role in your divorce. In Texas, your ownership interest can qualify as “community property,” which means it’s subject to division during divorce

In many cases, one spouse agrees to give up his or her ownership stake in exchange for other assets. When that doesn’t happen, the couple will need to know how much the business is worth before it can be divided. As you can imagine, valuing a company can be a complex task.

In this article, our Dallas business divorce lawyers will explain three of the key concepts that will affect your business valuation. 

1. Community Property vs. Separate Property

Usually, the first thing to do is to determine which parts of the family business are considered community property. If the company was started during the marriage, whether by one of you or as a joint venture, then the entire business will probably be considered part of the marital community and be subject to division. 

Along with deciding whether the company is community or separate property, several other questions will need to be answered. 

  • If the company existed before you got married, what was its value at that time? 
  • Since the marriage, has it increased or decreased in value? 
  • Did both of you play equal roles in the company? 

All of these questions will impact the eventual decision of business division.

2. Different Methods of Valuing a Texas Business

Typically, each spouse’s attorney will assemble a team of accountants, appraisers and other experts to value the company. They will generally use any of three models of business valuation:

  • Asset model: This method values the company’s assets and then subtracts liabilities to arrive at a final value.
  • Income model: The company’s historical earnings, current earnings and projected future earnings are analyzed and used to compute a business value.
  • Market model: An appraiser looks at sales of comparable companies of similar size and the same market to determine how much your company is worth.

Each method relies on documents like tax returns, income statements, balance sheets, account statements and other paperwork.

3. Competing Valuations

Remember, each spouse typically has their own experts perform a valuation. The results are usually different, sometimes drastically so. The best way to address competing valuations is to negotiate out of court because this avoids the expense and uncertainty of litigation. Sometimes, though, a trial is necessary.

Speak With a Texas Business Owner Divorce Attorney Today

Albin Oldner Law has extensive experience representing business owners and spouses in Texas divorce cases. Our attorneys will take the time to understand your goals then develop a plan to achieve them. Please call (214) 225-9138or send us a message to arrange a consultation at our offices in Frisco, Plano, or using a virtual meeting tool like Zoom.