When it comes to the topic of divorce people’s first thoughts often go to things like: How will it effect the children? Who will get the house and the cars? How much am I going to have to pay in child and/or spousal support? Will I have to part with half of my stock portfolio? But for those who own their own business, there are additional things to be considered.
- Your Business Will Be Treated Like Any Other Property in Marriage.
As you are probably aware, Texas is a community property state. Which means that half of the marital property belongs to you, and the other half belongs to your spouse. So much like the marital residence and joint bank accounts, your business will be justly and rightly divided by the Court if it is deemed to be community property.
- Is It Separate or Community Property?
When it comes to categorizing your business as community or separate property there are two key words that must be examined: when and how. Timing is everything when it comes to property division. When your business was established directly determines how much of its worth is your separate property. There will need to be an analysis of how much this business was worth before the marriage, and how much it was worth after. The increase in value during the marriage may be considered community property. Next you must determine how that business came about. Did you start it up on your own, or did you inherit your position? A business inherited will likely be considered separate property, regardless of whether it was inherited before or during the marriage.
- How Will It Be Divided?
This is the question that you’ve been waiting for and unfortunately for you, the answer depends. If portions of or all of your business is classified as community property, it will be divided by the Court. That’s it, end of story. Where things can vary is how. For example, if before marriage you built the business and now you run the business, profit from the business, and put your name on the business, it’s not likely you’re going to have to transfer ownership after divorce. What may happen is that the Court will order you to pay half of the community property portion of the business to your spouse. However, if you started the business during the marriage, and gave yourself X number of shares, you could have to split those shares in the divorce. Then there’s a scenario where the Court could simply order that your shares/the business be sold and the profits split between the spouses.
- Can You and Your Ex-Spouse Continue to Run the Business?
There are certain situations where it’s best for all parties and the business as a whole to avoid division and to continue as it was prior to divorce. This, however, is a special situation. One that occurs when both spouses equally built the business together, equally managed the business, own equal shares in the business, and the business would suffer without the contributions of either one of them. If you truly believe that you and your spouse can coexist as just business partners, without harboring any ill will towards one another, this may be an option for you.
- Prevention of Division
As the saying goes, “the best offense is a good defense”, or is it the other way around? Regardless, prenuptial and postnuptial agreements can help protect your business interests from every being in the community property pile in the first place. A well drafted premarital agreement will keep your separate property yours, whether it’s your dog or your fortune 500 company. And should you decide to start a business during the marriage, a postnuptial agreement can set you up to keep all the profits, as well as the risk, to yourself.
If you are a business owner, and you see a pending divorce on the horizon, reach out to us at O’Neil Wysocki Family Law. We will put what’s important to you first and treat your business like our business.