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What Happens to A Business when Its Owners Divorce?

The people of Texas have a great entrepreneurial spirit, and many Houston residents are small business owners. Having built a business from the ground up is a satisfying endeavor that can take many years. As a person's business grows, so may their personal life. They may marry and have children all while growing their business. However, they may also experience a divorce. Any of these major life events can have a significant impact on one's business, especially if they shared the business with their spouse.

Sometimes, a young couple will start a business with only a few pennies to their name. In the beginning, their business might not have had much value. However, as time goes by, a business can become profitable, and it is not unknown for a couple's business to eventually become their largest asset. Given the nature of business ownership, should the couple divorce, it is often the case that it is financially impossible for one party to buy out the other. There are some options, however.

One thing a small business owner can do even before walking down the aisle is execute a prenuptial agreement. This type of agreement can lay out who gets the business should the marriage fail. In fact, if done right, a prenup can take precedence over property division laws even in community property states such as Texas.

Another option is a buy-sell agreement. This is a contract that lays out what will happen if one business owner passes away or in another way (such as through divorce) leaves the business. In a buy-sell agreement, a person's shares in the business are put up for sale back to the company or other business owners.

And, of course, even after a divorce, spouses can agree to continue on business operations as they had while they were married. Of course, keeping on as co-owners will only work if the parties are able to set their emotions aside and work for the greater good of the business. And, even if the spouses choose this option, they should still execute a shareholder agreement that allows them to buy the other out for a certain price that has already been agreed upon.

In the end, through careful preparation a person's business can weather many of life's events, including divorce. Business owners in Texas who are going through a divorce and are concerned about how it will affect their business may want to discuss the matter with an attorney.

Source: MarketWatch, "How to protect your family business during a divorce," Daniel Thompson, Feb. 10, 2017

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