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How do you protect your business during property division?

Small business owners and entrepreneurs in Texas may be working so hard on building successful businesses that they fail to stop to think of the consequences of a divorce -- either theirs or those of their business partners. Texas is a community property state, and an unprepared business owner who is going through a divorce may lose half of his or her business during property division. In many cases, small businesses are partnerships, and if one partner's marriage ends in divorce, his or her ex-spouse may end up being an unwanted partner in the business.

One way to avoid such a situation is for each business partner to have the issue addressed in a prenuptial agreement in which the future of the business is specified. If a new business is established during a marriage, the owner of the business may want to draw up a postnuptial agreement to protect his or her business interests. Prenups and postnups are thoroughly scrutinized by divorce courts, and, for this reason, it is vital to ensure all legal requirements are met when drafting and before signing such documents.

If one partner in a business is unmarried, it may be a good idea to draw up a business agreement stipulating that the unmarried partner should secure his or her part of the business with a prenuptial agreement in the event of a marriage. While a business agreement will have no significance in a divorce court, by requiring a prenuptial agreement, it may ensure all ex-spouses are excluded from ownership of the business. If none of these steps were taken, a divorcing business partner could protect his or her interests by paying the ex-spouse for his or her share of the business.

In order to avoid the court determining that business assets were commingled with marital assets, the business owner should ensure that he is paid as an employee. For further protection, business finances should be kept separate at all times. Texas business owners may want to consult with experienced divorce attorneys to ensure the legality of agreements in order to protect their interests during property division.

Source: bizjournals.com, "How to protect your business in a divorce", Patrick Yeatts, March 25, 2015

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One Allen Center, 700 Central Expressway South, Suite 150
Allen, TX 75013
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