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Active, passive business appreciation impacts property division

On Behalf of | Sep 20, 2017 | blog |

Owning a Texas business can provide you with a lucrative income as well as a sense of pride and accomplishment. You may understand the inner workings of your company and feel prepared for various obstacles that could potentially arise and cause conflict within your business operations. However, you may feel less prepared for what your business will face when it comes to dividing assets in divorce.

If you created a prenuptial agreement, you may have sidestepped this issue by coming to agreement terms before the marriage even took place. However, many people do not utilize this document, and if you did not, portions of your company could go to your soon-to-be ex-spouse. During the property division process, active and passive appreciation of your business could play important roles.

Active appreciation

When it comes to active appreciation regarding the value of your business, this appreciation could go through division during your divorce. Active appreciation constitutes business value growth that occurred due to your active participation in the company. Your efforts during your marriage resulted in the business gaining in value, and as a result, that gain falls into the category of marital property.

However, determining the exact amount of active appreciation can prove challenging when considering business ventures. In some cases, your company may have grown due to active efforts, but those efforts could potentially have come from other parties than yourself. Therefore, it may not constitute appreciation subject to property division.

Passive appreciation

Another type of appreciation that could affect your company’s value involves passive appreciation. This type of appreciation involves factors that allow your business value to increase, but the increase does not occur due to your direct efforts. For example, economic and industry growth could passively cause your business value to increase. Gains attributed to passive appreciation typically do not go into consideration when dividing marital property.

Because distinguishing between active and passive appreciation when determining business valuation can prove complicated, a professional valuator may need to assess your particular circumstances to determine appreciation.

Property division

Knowing the active and passive appreciation associated with your business could give you a better idea of how much appreciation could face property division proceedings. This information may allow you to better strategize when it comes to working toward the division outcomes you most desire and protecting your company’s best interests. Therefore, you could find additional information on valuing a business for divorce useful.