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Can a Professional Practice be Divided in a Texas Divorce?
When a couple files for divorce in Texas, all marital assets are subject to equitable division, which could include rights to professional practice. When a marital estate includes high-value or complex assets such as a professional practice, property division is often the most contentious issue.
If you or your spouse are licensed professionals, then you need the support of a divorce attorney with experience and knowledge in these types of cases. Dividing a medical practice, dental practice, law firm, accounting firm, or any other type of professional practice is complex and requires proper valuation and tailored legal strategies.
At Youngblood Law, PLLC, we have a wealth of resources at our disposal and an in-depth understanding of the laws and regulations surrounding your case. We will use low-conflict strategies to reach an out-of-court resolution if possible. At the same time, we will always be prepared to fight for your rights in front of a Judge.
Whether your case involves a solo practice, a partnership, or a professional business, we can help. We understand that businesses are often the most valuable assets in divorce and that the outcome of property division is essential to securing the future of our clients.
Begin to build a roadmap to your future today. Contact us and arrange a free consultation with an experienced Texas divorce attorney at 817-369-3970.
Community Property Laws and Dividing Assets in Texas
In accordance with Texas Family Code § 3.002, Texas is a community property state. This means that all assets need to be split into separate and community property.
Any property acquired by you or your spouse before you were married is separate property, which means that it continues to belong to each individual if the marriage ends. Inheritance and gifts that are made in one spouse’s name can also remain as separate property.
If you or your spouse owned a professional practice before you were married and it was kept separate throughout then it could remain as separate property. However, if the professional practice increases in value or its assets are mixed with marital assets, it becomes community property.
All property acquired throughout the marriage by either spouse is considered community property, which is subject to equitable distribution upon divorce. All property, including a professional practice, will be presumed to be community property until either spouse can provide clear and convincing evidence as to why it should remain separate.
Professional Businesses vs. Other Small Businesses
Most professional businesses cannot be owned by non-licensed professionals. For example, in Texas, a non-lawyer cannot own a law firm. While Texas community property law may entitle a spouse to equity ownership in the firm, the spouse cannot be the owner of the firm. Solo practitioner medical professionals and other professionals are likewise protected by their respective licensing boards.
Other privately owned businesses are not restricted in the same way. Non-professional businesses like construction companies, retailers, automotive repair, etc., can be more easily divided in a divorce because either spouse can easily own and operate the business independent of the other, provided both spouses have the skill to do the work. Even in businesses that require a license, like a plumbing company or HVAC, a non-licensed spouse can own and operate the business by hiring the licensed worker to do the technical work.
Equitable Distribution of Community Property in Texas
In the event of a divorce in Texas, community property must be divided in a just and equitable manner. Often, equitable distribution means a 50/50 split of property, but not always. Equitable distribution means that individual circumstances are taken into account to determine what is fair.
Important considerations for determining an equitable division of property could include:
- Each spouse’s contributions to the marital estate
- How long the marriage lasted
- What the child custody arrangement is and whether one spouse is taking on the role of primary caregiver
- The value of each spouse’s separate property
- The age and health of each spouse
- Each spouse’s work history and earning capacity
- The grounds for divorce and whether one spouse is at fault
- If there is any history of domestic abuse
Considerations in Divorce Cases Involving Professional Practices
There are unique considerations for dividing a professional practice. If it is a shared family business and spouses are able to remain amicable, then they could continue to work together. However, this is rarely a viable option.
In many instances, a non-professional cannot own a practice, and so often legal ownership can’t be split. For example, someone cannot own a medical or dental practice if they do not have a professional license. In addition, professional practices often have a value of goodwill, which is an intangible value based on referrals, reputation, and legacy. If a professional were to leave, it could lower the value of the practice.
Therefore, it is common for the value of a professional practice to be divided, rather than the practice itself. While selling the practice and dividing the profits is one option, it is often not the best way forward. A professional practice often supports a family, and no one benefits from it being sold.
Instead, the spouse who owns the professional practice could keep it in exchange for giving other assets over to their former spouse, such as the marital home. The couple will need to have the practice professionally valued in order to determine a fair agreement.
Valuing a Professional Practice
If a professional practice is determined to be community property, then the next step will be to determine how much it is worth. An accurate valuation is essential and should consider many factors, including its potential market value now and in the future, tangible assets, and intangible assets such as intellectual property.
Texas also considers business goodwill which is the intangible value of the referrals, reputation, and legacy of the professional practice. This must be distinguished from personal goodwill attached to the professional as a solo practitioner.
Some of the challenges of valuing a professional practice include the following:
- Professional practices such as medical practices or dental practices have expensive machines that could be difficult to value
- Debts and contracts must also be considered when determining the value of a practice
- Goodwill and other intangible factors are highly subjective
- There are various approaches for evaluating a practice, such as an asset approach, fair market value approach, and cash value method
- The projected value of the business could be difficult to establish
- The value of the practice could change during the divorce
- Using similar businesses that have recently sold as a guide could be inaccurate as their value could be driven by different factors
You and your former spouse may agree on a professional to evaluate the practice, or you may each seek a valuation and then negotiate with the help of your attorneys if there are discrepancies. If the two spouses cannot agree then the court will make the final decision. However, this can be time-consuming and expensive.
Can a Professional Practice be Divided in a Texas Divorce? FAQ
A high-asset divorce is one which involves significant assets. If your divorce involves a professional practice, then it is likely to be considered a high asset. In this case, it is important to have the support and guidance of an experienced high-asset divorce attorney to ensure that you receive your fair share of property. If you don’t, you could lose your right to those assets forever.
Debt is treated in the same way as assets; therefore, if it was acquired during the marriage, is it subject to division. Your divorce may place obligations on each of you to determine who is responsible for paying what. However, if the debt remains in both your names and the other spouse fails to make payments, then creditors can turn to you. An experienced divorce attorney can help to protect you by ensuring a fair and concrete agreement.
A non-working spouse is entitled to a fair and equitable division of property; they may also be entitled to alimony.
If your spouse tries to hide marital property, then you should discuss your concerns with your attorney. They can help track down property to ensure that it is considered in your divorce decree. If they are found to have tried to hide assets then they could lose all rights to them.
Speak to an Experienced Divorce Lawyer Today
At Youngblood Law, PLLC, we are well equipped to handle even the most complex cases, such as those involving property division of a professional practice and business assets.
Your divorce attorney from Youngblood Law, PLLC, will help you and your ex-spouse negotiate an agreement that protects your rights and interests. Minimizing court involvement will allow you more freedom to arrive at an agreement that best serves you and your family while also moving your divorce along more quickly.
If this is not possible, then we will be prepared to advocate on your behalf in court to ensure you receive what you are owed.
Whether you need help to protect a professional practice or are fighting to protect your right to your fair share of a spouse’s practice, we can help. We will also guide you through any other factors relating to your divorce such as child custody, child support, and alimony.
Our goal is for you to help you secure the best future possible. Contact our law firm today and arrange a free consultation with an experienced divorce attorney at 817-369-3970.