Fabio & Merrill

Community property and your LLC

Texas business owners who divorce must be very mindful of the process of dividing the debts and assets from the marriage. The reason for this is that Texas is one of the few states that follow a regime of community property.

As with most legal situations, there are pros and cons associated with divorcing in a community property state, as each spouse has the right to walk away with 50% of the assets from the marriage.

But when one or both parties have an interest in a business, it ups the ante considerably since it's likely that at least one spouse derives all or most of their earnings from the company or enterprise.

Could you lose your LLC in a divorce?

Limited liability corporations (LLC) could be subject to division in a Texas divorce. How the community property laws affect you and your business should be an important concern to address with your South Texas family law attorney.

One thing to consider is the level of your spouse's involvement in the business. If the two or you formed the fledgling corporation together in the early years of your marriage, watched it flourish and grow, and stayed involved in the day-to-day operations, it is likely that your soon-to-be ex-spouse is as vested in the company as you are.

Do you have other business partners?

Maybe it wasn't just you and your spouse in the LLC. Perhaps your fraternity brother from college is in partnership with you on this endeavor. As you head into divorce court, your partner likely will have his own concerns about the future of the company.

Ideally, when you formed the partnership with your spouse and/or your friend, you included a clause in the operating agreement which dealt with future fissures in the relationships, including divorce. This is a good thing, as it becomes the blueprint to guide you through this process.

Most, but not all, divorced people are uncomfortable remaining business partners with an ex-spouse. This discomfort is exacerbated if their partner was the one to decide to end the marriage and/or has already moved on to another relationship. While some former spouses grit their teeth and are determined to soldier through together as exes and business partners, it's a sad fact that their negative emotions toward one another can affect the sustainability of the business.

You could lose your marriage and your business

While business partners don't have to be in lockstep on every decision and some ex-spouses do indeed make it work, your deteriorated relationship can have a decided negative effect on your formerly thriving business.

You don't want to see all of your hard work disappear and your company wind up shuttered. There may be a better way.

Sweeten the property settlement pot

If you really want to retain sole ownership of the business, you need to consider making your ex an offer that they can't refuse. No, not the Mafia version, but a deal too good to pass up. Maybe you could offer your share of the family home in lieu of their signing off on all business interests and throw in the country club membership as well.

Alternatively, if you have a lot of earning years ahead of you, you could offer a larger share of the retirement benefits to offset the business interests.

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