W. Tyler Moore, PC

What happens to your business in a divorce?

When it comes to dividing marital property in a Texas divorce, a number of complicated issues can arise, especially when dealing with high-value assets. If you own a business, you probably have important concerns about its fate in your divorce.

One of the first questions to ask is whether the business is separate or community property. Only community, or marital, property will be subject to division. With few exceptions, property you acquire before marriage is separate, and assets you purchase during the marriage are marital.

Determining whether the business is a marital asset

However, especially when dealing with a business, these matters can involve more complications than apparent from this simple-sounding rule. For example, if you created a business during the marriage using only your separate assets, it may remain separate. However, income this business generated during the marriage counts as a community asset.

On the other hand, when your spouse contributes to your separate business, he or she may become an entity to a share of it. The amount of the share can depend on the extent of involvement. Contribution to increased growth can be given if a spouse holds claim to part of the profits resulting from his or her efforts or financial investment.

Methods of division

If any part of the business belongs to the marital estate, you and your soon-to-be ex will need to figure out how to divide it. Business owners often want to keep their business and not allow their ex to have any measure of control over it. Your best option in such a case would be to buy your spouse out. Alternatively, if you do not want to or cannot put down cash, you can let him or her have another marital asset of equivalent value to his or her business share.

When a couple cannot come to a consensus on division, a judge may order you to sell the business and divide the profits. Yet a third alternative is to keep the spouse as part-owner, which can only work when the divorce is amicable.

Agreements

You may also have an agreement covering what happens to your business if you divorce, such as in a prenuptial agreement. You may also have signed some type of business contract with your spouse. Consult your lawyer as to the validity of any such provisions.

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