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How will divorce affect the business you own?

Even in ideal circumstances, divorce is rarely simple or easy, but it can prove devastating for a business owner and the employees and others who depend on income from the business. Although divorce is the dissolution of a personal relationship, it also has far-reaching implications for both spouses' financial and business concerns, often creating surprisingly complex legal conflicts.

If you own a business and also face divorce, the business may not survive the divorce if you do not make its survival your top priority. Businesses often qualify as marital property in divorces. For Texas business owners, this often means that their spouse has a strong claim to half of their owned value in the business, just as a spouse might claim half of the value of a marital home. 

Protecting your business during your divorce can be quite challenging, especially if you do not have a prenuptial agreement in place. If you hope to protect your business and keep it together while your marriage dissolves, now is that time to act. Otherwise, you may lose the business on the negotiation table during property division.

Can you claim that the business is not marital property?

If you don't have a prenuptial agreement, you may still have grounds to claim that the business is not marital property if:

  • You owned the business prior to the marriage
  • You established a postnuptial agreement protecting it after marriage
  • You keep your personal and business affairs sufficiently separate

In some circumstances, courts may allow you to keep the business off the table, if you demonstrate that it is not functionally part of your marital property. However, in order to attempt this, you must provide clear documentation that your spouse did not contribute meaningfully to the business and that your personal finances and your business finances remained separate.

The more commingling that occurred between your personal and family finances and your business finances, the more difficult it is to claim that your spouse does not have a strong claim to the business.

Alternative compensation

In many cases, keeping the business off the table entirely is simply implausible. If you find yourself in this position, consider carefully how valuable the business is and whether or not you are willing to sacrifice other assets to keep it intact and afloat.

If your spouse does have a strong claim to the business, then you generally must find ways to compensate him or her fairly with other assets that equal the value they should receive from it. This could mean offering your spouse a fair amount of other assets to balance the scales, or may entail an ongoing arrangement to pay your spouse the owed value over time.

Ultimately, you are the only one who knows what you are willing to sacrifice to keep your business as you move out of your marriage and into the next chapter of your story. Take great care to protect all your rights and priorities, placing your feet on firm ground once the present storm settles.

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