If you are married and own a business, did you know that if you dissolve your marriage your spouse may be entitled to half of your company? As Texas is a community property state, the law assumes you and your spouse each own 50 percent of all marital assets if you get a divorce. So, unless you take the steps necessary to protect your company, you may need to prepare yourself for the worst.
How can I protect my company?
You can do several things to shield your company from the ravages of divorce. If you aren’t married yet, but it’s on the horizon, you could consider asking your future spouse to sign a prenuptial agreement. In this type of contract, you outline specific details regarding the distribution of your property in the event of divorce and identify what remains separate property – such as your business.
If you’re already married, a post-nuptial agreement might provide you with many of the same protections of a prenuptial agreement.
A few other ways to protect your company include:
- Pay yourself: Take a salary from the business. Otherwise, your spouse could receive a portion of any income you direct back into the business and not into the household.
- Put divorce provisions in business contracts: This is particularly important if you own the business with third parties.
- Keep work and home life separate: A spouse who assists in business affairs in any way may have rights to a percentage of the company.
What are my options if my business is considered marital property?
If you haven’t taken any steps to keep your business separate from your marital property, it more than likely becomes part of the marital estate and subject to division during divorce proceedings. Depending on what you and your spouse want for the company, you still have options.
If you want to continue running your business but do not want your soon-to-be ex to continue having a part in the company, you could try to buy out him or her. You may accomplish this by granting him or her more in marital assets, providing a lump-sum payment for the value of his or her business interest or offering a long-term payout.
If that option doesn’t work, one of two other options remains. You can continue running your business with your spouse as your partner, or you can sell the business and split any proceeds. Neither is ideal.
Seek help
You don’t have to let the dissolution of your marriage ruin your business. You worked hard to build something that you are proud of, and you shouldn’t have to let that go. An experienced family law attorney can assist you whether you need to divorce proof your company with a pre- or post-nuptial agreement or need help achieving a property division agreement that is fair to all involved.