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Is there a way to protect your business in divorce?

On Behalf of | Feb 1, 2019 | Property Division |

If you are like most people, you entered your marriage with the hopes of happily ever after. Unfortunately, not even half of all married couples achieve this goal. According to Inc., 52 percent of first marriages end in divorce and 70 percent of second and third marriages end more or less the same way. Whether you and your significant other have yet to tie the knot, are happily married or are in the throes of a Texas divorce, if you own a business, take proactive measures now to protect the business you spent so many resources growing and nurturing. Otherwise, the Texas courts may award your spouse 50 percent of the company in the divorce.

Ideally, the best way to protect your business in a divorce is to draft and sign a prenuptial or post-nuptial agreement. Of course, if you are reading this after divorce becomes a probability, this measure will not help you. However, if you simply wish to prevent an issue should you and your significant other decide to part ways in the future, talk to your lawyer about what you need to do to draft a conscionable and valid agreement that will override Texas’s community property laws when it come to your business. If you create a post-nuptial agreement, note that the courts will only recognize it if you and your spouse created it before either of you ever mentioned divorce.

Another proactive measure you can take is to use a partnership, LLC, shareholder or buyout agreement to lock out your spouse. In these operating agreements, you can include provisions designed to protect the interests of all owners in the event that one gets divorced. In addition to drafting a sound operating agreement, pay yourself a decent salary. If you invest most of your money back into your business, the family law judge may have no choice but to turn to your business to ensure your spouse walks away for an equal share of assets.

If it is too late for you, and if you and your spouse have begun the divorce proceedings, you may have to pay off your spouse. At this point, your spouse is entitled to 50 percent of your business. If you want to keep the business, use your share of marital assets to pay him or her off. If your business represents the vast majority of your assets, the courts may order you to sell it and split the profits. 

The information in this post is meant to educate. It is not legal advice.