Last Updated on September 27, 2023 by Benson Varghese
How Are Business Assets Divided in a Texas Divorce?
A business is often one of a person’s most valuable assets, not only financially, but also personally. A successful business takes years of hard work, patience, and personal investment to grow from the ground up. If you are facing the possibility of a divorce, you may want to consider taking steps to ensure that your business assets are protected. The last thing a couple wants after going through a divorce is to have to sell off their business or even co-manage it. Learn about business assets in divorce.
What Happens to Property During a Divorce?
How property is divided during a divorce depends on the state. Texas is referred to as a “community property” state. There are only a handful of other states that follow this type of law. According to the Texas Family Code Sec. 3.002, community property consists of any property acquired by either spouse during the marriage.
Understanding Community Property vs. Separate Property in Texas
Courts will presume that any property owned by either spouse during or at the end of the marriage is community property, unless otherwise proven by clear and convincing evidence. Property that is not community property is considered separate property. This includes any property that is acquired prior to the marriage, received during the marriage through inheritance or as a gift, or money received in recovery from personal injuries sustained during the marriage.
How Are Business Assets Divided in Divorce?
In a community property state such as Texas, any community property is divided equally between the spouses upon divorce. Unlike in equitable distribution states, where judges have some discretion in how to fairly divide up the property, community property is divided 50/50 between the spouses.
Equal Division of Property in Texas Divorces
All community property assets, therefore, need to be divided equally, unless otherwise agreed upon. While some assets, like cash and stocks, may be easy to divide between spouses, other property, such as real estate, cars, and businesses, are less straightforward to divide equally. If a business was started during the marriage, and both spouses contributed to it, it is likely going to be treated as community property, and therefore divided equally upon divorce. Below are a few examples of how business assets are divided in divorce.
Examples of How Business Assets Are Divided in Divorce
First, the court may simply require the business owners to sell the business and divide the proceeds. While this is one way to ensure that the value of the business is split down the middle, it is usually not the owners’ preferred option. It is hard to see your business fall into someone else’s hands, and for many, it is a primary source of income. Therefore, most business owners will try to avoid this route.
Another option is that the court might order a buy-out, where one spouse is ordered to sell their interest in the property to another. A third option is that the spouses may continue to own and operate the business jointly. Depending on the nature of the relationship and the ability to work together, joint ownership is potentially feasible. The experienced family law attorneys at Varghese Summersett Family Law Group can help you understand how your business assets may be divided in your specific circumstances.
How to Protect Business Assets in a Divorce
One of the easiest ways to protect business assets in the event of a divorce is to reach an agreement with your ex-spouse before the court steps in and makes the final decision.
Sometimes people enter into marriages early in their career before they have built a successful business. In other cases, people get married after they have already created a mature, operational business. Regardless of which stage of life you are in, a prenuptial agreement may help protect your current or future business assets in the event of a divorce.
Under the Texas Family Code, a prenuptial agreement, or “premarital agreement” is an agreement made in consideration of marriage. It must be in writing, and there must be a full disclosure of each party’s financial assets prior to signing. Other factors required to make a premarital agreement enforceable include:
- The agreement must have been voluntarily signed by both parties
- The agreement must not have been unconscionable, meaning each party must have fully disclosed their finances, and the agreement must have been fair at the time of execution
Premarital agreements can cover a vast range of topics, ranging from deciding spousal support, establishing the rights of each party during marriage, and making wills. Importantly for the topic at hand, premarital agreements also allow the spouses to agree upon how property will be divided upon divorce. If you have a business or expect to have a business in the future, your agreement should reflect that you want to have full ownership and control over that business after a divorce.
A postmarital agreement is almost exactly the same as a premarital agreement except that it is entered into after marriage, rather than before. The parties have the same rights and obligations under a postmarital agreement.
Another marital agreement that may help protect your business assets is a settlement agreement. When spouses file for divorce, they should first try to reach an agreement between themselves. This helps eliminate some of the uncertainty of taking the divorce to court. You and your spouse know your assets best, so if you can avoid having the court divide it for you, you may be in a better position to protect what is ultimately important to you. If you and your spouse are willing to negotiate a settlement agreement, you may be able to trade off some of your other assets to be able to keep your full business interests.
Consider Discussing How To Divide Your Business Assets with a Texas Family Lawyer
Texas has some unique laws when it comes to property distribution after divorce. Consider speaking with an experienced family law attorney in Texas to help you accurately value your business assets and create a fair distribution. Going through a divorce alone can be difficult, so allow our compassionate and experienced family lawyers to stand by your side and stand up for your legal rights. You can reach our legal team at Varghese Summersett Family Law Group by calling (817) 900-3220 or by filling out our online contact form. Contact us to learn more about how business assets are divided in divorce.