When a marriage involves ownership in a private business, the divorce process often becomes significantly more complex. Divorce and closely held corporations create some of the most challenging disputes in family law because the business is often both a source of income and a deeply personal investment. Unlike publicly traded companies, closely held corporations typically lack transparent valuations, and their worth is tied to the efforts, relationships, and decisions of one or both spouses. Texas law requires a careful distinction between community and separate property, and courts must determine how to classify, value, and divide interests in these businesses. Without proper legal and financial guidance, a spouse may walk away with far less than they deserve, or a business may face serious disruption. If you or your spouse owns interest in a closely held corporation, it is smart to talk to an attorney about how divorce may impact your finances. At McClure Law Group, our seasoned Dallas divorce lawyers have extensive experience in handling divorces involving closely held corporations, and if you hire us, we will develop sophisticated strategies designed to protect both your financial and personal interests.
Understanding Closely Held Corporations in Texas DivorcesA closely held corporation is generally defined as a business with a small number of shareholders, often family members, who hold significant control over its operations. Unlike public companies, these businesses do not have readily available market values. In divorce, this lack of transparency creates substantial legal challenges. Under Texas community property law, assets acquired during the marriage are presumed to be part of the marital estate, meaning that any ownership interests in a closely held corporation may be subject to division. Determining whether the ownership interest is separate property, meaning it was acquired before marriage, by gift, or through inheritance, or community property earned during the marriage, is a critical first step.
If the business was established before marriage but grew in value during the marital relationship, the increase in value may be considered community property. Conversely, if the business was launched or acquired during the marriage, its entire value may fall within the marital estate. Divorce and closely held corporations thus demand a nuanced legal analysis to distinguish separate property from marital assets.
In many divorce cases involving closely held corporations, the parties will need to retain forensic accountants and financial experts. These professionals can trace funds to determine whether assets were commingled, identify hidden income streams, or uncover improper transfers designed to diminish the marital estate.
Valuation Challenges in Dividing Private BusinessesThe value of a closely held corporation is often one of the most contentious issues in divorce litigation. Unlike liquid assets or publicly traded stocks, the worth of a private company depends on numerous factors, including revenue, goodwill, future earning potential, and market conditions. Texas courts often require professional business valuation experts to assess fair market value. These experts may apply various methodologies, such as income-based, market-based, or asset-based approaches, to determine a realistic figure.
The valuation process can also raise disputes over whether personal goodwill should be included. Personal goodwill refers to the value tied to the reputation, skill, or relationships of a specific spouse, and Texas courts typically exclude it from the divisible marital estate. Community goodwill, on the other hand, belongs to the company itself and is subject to division. Navigating these distinctions is crucial in protecting both the integrity of the business and the rights of the non-owner spouse.
Protecting Business Operations During Divorce
Beyond valuation, divorce and closely held corporations often raise practical concerns about business continuity. In some cases, both spouses may have ownership stakes or even active roles in managing the company. During divorce, disagreements can spill into day-to-day operations, threatening the company's stability. Courts may issue temporary orders to prevent disruption, such as prohibiting major financial decisions without mutual consent.
In other situations, a buyout may be the most practical solution. The court may award the business interest to one spouse while granting the other spouse assets of equal value, such as real estate or investment accounts. This approach minimizes disruption to the business while ensuring that both parties receive their fair share of marital property.
Consult a Skilled Dallas Divorce AttorneyDivorce and closely held corporations require careful legal strategy, financial expertise, and strong advocacy. If you are facing a divorce involving business ownership, it is smart to consult an attorney about how you can protect your rights and financial well-being. At McClure Law Group, our Dallas divorce attorneys have the experience and knowledge needed to handle even the most complex cases involving closely held businesses, and if you retain our services, we will work diligently to help you seek an outcome that protects your future. Our main office is located in Dallas, and we have a Collin County office in Plano where we are available by appointment. We represent clients in Garland, Fort Worth, McKinney, Richardson, Frisco, Irving, and Rockwall, as well as throughout Dallas, Collin, Grayson, Tarrant, Rockwall, and Denton Counties. Call us today at 214.692.8200 or complete our online form to schedule a confidential consultation.