Business Ownership and Divorce in Texas

Texas is a community property state. When couples file for divorce, both the community property and marital debts must be split. When the term “community property” is used, it is often presumed that this relates to items such as the marital home, vehicles owned by the couple, assets within the marital home, vacation homes, and bank accounts. Those items certainly do fall within that category in most instances. Another asset that may or may not be categorized as community property is business ownership or an interest in a business.

Divorce Can Affect Your Business

The process of divorce can affect your business in several ways. One of the most common ways it affects business owners is in the context of productivity. In addition to working through the legal process of divorce, which may include attending divorce settlement conferences as well as appearing in court, the day-to-day life of settling into a new routine can make it more difficult for business owners to attend to the daily needs of their business. Of course, handling the productivity aspect is something that’s possible. Options include relying on key employees, reducing your workload, working a compressed schedule, and bringing in temporary contractors that can assist in maintaining the current expected standard of your business.

Divorce can also affect your business because it may be seen as a community property or quasi-community property. In short, your soon-to-be former spouse may be legally entitled to a portion of your business or business interest. Often, it is best for business owners to prepare for this possibility in advance of getting married, although that’s not always possible. Businesses started by one person, not with their spouse, before the marriage is generally treated as separate property.

Quasi-community property in Texas as it relates to business (or any other sort of asset) that is separate property and is treated as community property. This could result in what feels like unfair treatment of the business owner because they’re required to split their business and its assets with their former spouse.

For individuals that decide to start a business while they are married, the divorce process may cause concern since the business may need to be valuated to determine its worth.

The Division of a Business During Divorce

If the business is determined to be community property instead of separate property because it was created after the marriage occurred, the business owner has the option of paying their spouse the valuated amount of the business that is owed. This may be a particularly good option when only spouse actually worked in or was involved in the business and the other spouse did not.

Another way that a business owner could compensate the other party so that the business owner does not need to divide the business is to provide the other party with enough of the marital state that would compensate for the portion or value of the business as well as whatever the party was entitled to receive in the community property split.

If both parties were actively involved in the business, there is also the option of the couple continuing to run the business together. However, that can create future issues.

Protecting Your Business During a Divorce

If you’re filing for divorce and you own a business, it’s important to work with a top Texas divorce lawyer to help you protect your business. The Law Office of Julie Johnson has more than 20 years of experience. We’ve helped hundreds of clients through the divorce process, and we want to help you, too. We offer consultations. To schedule your consultation, call us now at 214-265-7630.