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How to Protect Your Business During a Divorce

Starting a business is an exciting new adventure for most young entrepreneurs. It’s a great way to grow your independence and achieve financial stability. Marriage is something that most people experience in their lives, although unfortunately, divorce is sometimes the result of that marriage. Going through a divorce can be challenging in many aspects of life; personal, family, emotional, and legal matters can take a poll on both parties. It can be especially difficult for business owners who don’t know the future of their business status and whether they still have full rights to it.

Deciding who gets what after a marriage ends can sometimes be a difficult issue to resolve among separating couples. Nobody thinks they’ll get a divorce. However, between 40 and 50 percent of all marriages now end in divorce, so it’s essential to be prepared when you’re a business owner.

It’s never too early to start thinking of possible scenarios and the future. Whether you are planning on getting married, are currently going through a divorce, or even if you think that you could be headed toward a breakup in the future, there are some steps you can take to help protect your business in case of a legal separation.

Know Separate vs. Community Property

It’s important to note the differences in separate vs. community property and how they affect one’s business rights if a divorce happens. Texas is considered a community property state, meaning that all income, property, and assets attained during the marriage belongs to both spouses equally and will be split equally if they divorce. If a spouse wants to keep some asset free from division, he or she must prove that it’s separate property. This usually includes:

  • Property that was owned prior to the marriage
  • An inheritance received by one spouse only
  • A gift received from a third party
  • Pain and suffering portion of a settlement they received in the past

*Note: This does not include money that was intended to make up for loss of income during the marriage.

With this in mind, one of the most important keys to look at is whether the business was started before or after the marriage began. Before a marriage, a business is considered separate property. After that, any income that is used for the marriage is considered community property. However, a family law court will divide it with “just and right” cause, looking at who owned the business beforehand.

Include your Business in a Prenup

Before you get married, always get a prenup to protect your business assets. You could go to an experienced family law attorney to get a prenup agreement that will withhold in court down the road. This will allow you both to decide beforehand which assets you both want to consider either separate or community property. By law, the prenup needs to be:

  • An agreement in writing
  • Executed voluntarily without coercion
  • A full-disclosure agreement
  • Executed by both parties; to make it more solid, preferably in front of a witness
  • Within reason

Make sure that you get an experienced family attorney that can help your agreement protect your business and withstand in court in the long run.

Think Twice about How you Operate

As soon as you involve your partner in your business, the business will probably be considered marital property. If they helped you run it or maintain it, they could be entitled to some part of the business after a divorce. If it is your business to begin with, it’s sometimes in your best interest for the future to leave your spouse out of the day-to-day activities so eliminate the possibility of them seeking compensation for their contribution.

In addition, many business owners think that if they pay themselves a smaller salary, they actually leave more to be split between their spouse if a divorce occurs. However, if you give yourself a lower salary while investing the rest of the money into the business, your spouse can claim that he or she didn’t reap the benefits of the business and can argue for more money.

Give Up Some Assets

While this can be a challenging ultimatum, sometimes the only way to protect your entire business as separate property in a divorce is by giving up other assets to your spouse so that they settle with you taking the business. This could include marital assets like cash, stocks, real estate, or retirement funds.

In addition, you can also offer to pay them out with long-term payments that will equate to their share of the business. In return, they give you the share of the business that they are seeking.

Contact an Experienced Divorce Attorney in Texas

Many people consider their business one of the most important parts of their lives. We understand that it can seem unfair for your spouse to receive a part of the business that you worked so hard to build from the ground up. It’s sometimes difficult to come to an agreement about the division of assets or a business, especially when the two of you are going through a divorce. If you need legal representation to help protect your business during your divorce, the attorneys at Benouis Law have years of experience protecting people’s rights and assets.

Contact our experienced divorce attorney at 512-764-3932 to discuss how we can help protect your business during a divorce.