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You don't have to lose your business in a divorce

No one gets married thinking that one day they will divorce. Weddings are happy celebrations of two lives joining as one, but the truth is that marriage can be tough. Not everyone gets the "happily ever after" storybook ending.

Statistics show that just over half of first marriages end in divorce, but that rate can climb to 70%. The sad fact is that 52% of all first marriages and 70% of second and subsequent marriages won't go the distance.

Some things make divorce harder than it has to be

If you or your spouse has an ownership interest in a small business, squabbling over it in divorce can drag out your case for extra months and deplete your resources. Especially in a community property state like Texas where the courts divide all assets by half for each spouse, knowing the true value is even more vital if you are trying to protect your business.

Is your business separate or community property?

Even if your business started out as your own separate property prior to your marriage, it is possible that some of it is now considered to be community property. You may wonder how that could be, but it's fairly simple. Commingling funds from the business into the community property by making deposits into a joint bank account is a major way to lose the distinction of separate property for your business and its profits.

Another sure way to call the ownership into question is to have your spouse involved with the day-to-day operations of the business. But spouses don't even have to have regular roles to receive a percentage of the company in divorce. For instance, if you and your spouse often brainstorm ideas on how to run your business and you incorporate their ideas into your business model, that could give them rights to some of your ownership interest. Still another way to open the door to a spouse's interest is if you did not draw a salary from the company and instead funneled all the money back into the business. Your spouse could credibly argue that, during the marriage, they were denied the fruits of your labors for the marital home. Avoid this fallout by paying yourself a competitive salary during your marriage.

What can you do if your spouse seeks the business in the divorce?

It should be noted that there are indeed exes who are able to continue running a business together post-divorce. But this is by far the exception to the norm and most business owners do not choose this route when divvying up community property in a Texas divorce. Below are some countermeasures to keep your business ownership.

  • Offer something of equal or greater value in lieu of your business, e.g., your share of the Galveston beach house or a larger percentage of the retirement pension
  • Negotiate to pay your spouse over time for their share of the business
  • Take on a neutral business partner to buy your spouse out

As always, make sure that you receive professional legal guidance before agreeing to any property settlement in your divorce.

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