If you are a business owner filing for divorce, you may be curious about what will happen to your business assets during your divorce proceedings. The Texas laws on property division dictate how certain assets are divided during a divorce. To learn more about how your assets will be divided between you and your spouse, you will need to discuss the details of your business ownership with a family law attorney.
Ask a Family Law Attorney: What Happens to Business Assets in a Texas Divorce?
When you have business assets in a Texas divorce, one of two things will happen. Either the divorce assets will be considered separate property and will not be divided equitably between spouses, or the business assets will be considered community property and you will have to work with your ex-spouse to divide the business assets fairly.
Is the Business Considered Separate or Community Property?
To determine whether a business is considered separate or community property, a judge will look at when the business was started. This is the primary factor for determining shared and separate property. As a general rule, businesses that were started before the marriage are considered separate property, while businesses started during the marriage are considered community property.
However, there may be factors that will turn your separate property into community property. For instance, if the worth of the business grew significantly during the marriage, your spouse may be entitled to part of the business assets that increased in value. Additionally, if your spouse contributed in any way to the business during the marriage, Texas courts may decide that the business is community property, even if you are the sole proprietor.
When Can You Keep Your Business Assets?
Usually, you can keep your business assets when your spouse had no involvement in the business throughout the marriage. For example, if you started the business before your marriage and you kept all business assets separate from shared marital assets, including capital for the business, then the Texas courts will be more likely to consider the business separate property.
How Can You Keep Your Business Separate?
There are a few ways you can keep your business separate. Keeping accurate and precise records of your business assets will provide proof of financial contributions to the business, which could prevent your spouse from claiming part of the assets during a divorce. You should also avoid funneling expenses through your business, particularly expenses that are used for the marriage, such as mortgage payments.
A prenuptial agreement is one of the best ways to ensure your business assets are considered separate property. Because a prenuptial agreement is a legal contract, it will prevent your spouse from retroactively trying to claim business assets during a divorce. You may also consider a postnuptial agreement that is validated during divorce negotiations to protect your business assets.
How Is Community Property Divided in Texas?
As a general rule, Texas believes in an equitable division of assets, which means that the value of assets is appropriate for the financial situation of either spouse. Because equitable doesn’t mean equal, it’s important to have financial documents ready to make your case.
Factors Considered by Texas Courts
When Texas courts are dividing community property, they look at a variety of factors for each spouse. The Texas courts will compare earning capacity, education, age, health, and current employment to determine which spouse will benefit more from a greater share of business assets. Texas courts will also examine other separate assets and liabilities.
Child custody arrangements may influence the court’s decision. For example, if your ex-spouse has primary custodianship of your children, the courts may be more likely to award a higher share of business assets to your spouse as part of the child and spousal maintenance.
How Business Assets Are Divided in Texas
Before the Texas courts can divide your business assets, there are a few things that might happen. The value of your business will need to be assessed. You and your spouse will also need to agree on the best way to divide assets.
If you are dividing a business during a Texas divorce, a family law attorney in Houston, TX will give you several options to consider. This can include one spouse keeping the business while the other spouse receives financial compensation, or even continuing to jointly own and operate the business. Some spouses choose to sell the business and divide the assets from the sale.
Ideally, you and your ex should decide how to divide various assets and properties during mediation. However, if you and your spouse can’t decide how to accurately divide business assets, the Texas court may step in. Whether your business assets are considered separate property or community property, it’s important to understand all of your options.