Protecting Your Business During Divorce

Complicated divorces are less than ideal. A business in the mix invites potential complications, and it is important that you are able to protect your assets allowing the business to continue to thrive. Divorces in Texas can sometimes put businesses in jeopardy.

A family-owned small business that is part of one spouse’s family fabric may even serve as revenue for more than just the divorcing couple. During a divorce, analyzing the business’ books may feel akin to analyzing the lives of the business owners and their families.

What is community property, and what is not?

Community property is just about everything that a couple owns together. The key during every separation is knowing what falls in that category and what doesn’t.

Community property generally includes anything and everything acquired between the day of the marriage to the date the divorce is finalized, which is not from an inheritance or gift. If a business is started during the marriage, it is likely community property, which includes its assets, debts, property, vehicles, and beyond, in addition to personal assets.

Separate property is generally defined as any property acquired before the marriage and any items acquired during the marriage via a gift or inheritance.

Prenuptial Agreements.

Prenuptial agreements, or “prenups,” are the most well-known way people protect their assets before marriage. They can determine what will be treated as community property and what will remain separate. When a business is involved, these can become crucial in determining how the business income and operation will be treated.

Signing one under problematic circumstances such as digress or nondisclosure of an asset or debt may also void all or part of the agreement, meaning everything must be accounted for when putting it together.

It is imperative that you have an attorney who knows what they are doing and drafts a prenup to ensure that it is enforceable if a divorce happens.

What are some other ways to protect your assets?

There are several means by which business owners can protect their share of a business in the case of a separation.

·        Buy/sell agreements — if the family business has more than one legal owner, a buy/sell agreement is a good foundation for splitting the assets under certain circumstances. In some cases, a divorce will even trigger a transaction. These agreements should ideally be completed long before separation takes place.

·        Post-nuptial agreements — Similar to pre-nuptial agreements, post-nuptial agreements contractually separate a couple’s assets, but after the marriage takes place. Just like with a pre-nuptial agreement, use a family law attorney that knows what they are doing.

·        Inheritance and gifts — As noted before, inheritance and gifts from family and others are not considered community property. If someone inherits an asset or a family-owned business, they can set it up strategically, so it is not considered community property.

Keeping the separation clean and financially beneficial.

Generally speaking, how much of the business you receive following a divorce depends on circumstances that were decided upon long before the separation occurred. However, there are strategies you can use to make the process as painless and financially beneficial as possible.

·        Costs and benefits — Divorces are decided either by a court or an agreement outside of court. Often, one spouse feels entitled to more, but the cost of litigation exceeds the money that could be received. Avoid litigating simply on principle to promote a cleaner and less stressful separation.

·        Keep the books tidy — Separating business assets is easier when the business’ books are informative and updated. If necessary, the court may consider everything from income sources, expenses, bill payments, and how the company is intertwined with household expenses. The best action is to separate household/personal expenses from business expenses entirely.

·        Get a business lawyer, too — Having a business lawyer and a family lawyer on your team will present the business in the most organized manner possible. This may lead to a better outcome in the event of a divorce.

Divorces are almost always difficult. Using these strategies and having an experienced team of family law attorneys on your side will make the process easier and help protect you and your business assets. Having an attorney with the resources and knowledge to give you the best representation is vital to your interest and the interest of your family.  You also want to make sure they will exhaust all avenues and be willing to research, pursue and implement strategies to provide the best possible outcome.

Rob McAngus, Partner with Verner Brumley Parker, P.C., is Board Certified in family Law and his practice is devoted primarily to family law, including high conflict divorce, custody cases, and complex property issues. In addition to being selected on the Board of Directors for the Family Law Section of the Dallas Bar Association; he values your priorities as a parent and works with you to achieve the goals that will help transition your family to a new normal.  As both an adopted child and a member of a blended family, Rob can provide a unique perspective in the practice of family law.

Rob has been recognized in Super Lawyers as a Rising Star in 2016 through 2021, and recently The National Advocates recognized Rob as one of the Top 40 Under 40.  He can be reached by calling 214.526.5234 or email at rmcangus@vernerbrumley.com.  Mr. McAngus received his bachelor’s degree cum laude and master’s degree from Baylor University and graduated cum laude from the Dedman School of Law at Southern Methodist University.