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Divorce and small business: Are your assets protected?

As a small business owner, you fight to grow your business. Despite long hours at work and continued vigilance, your business’ assets may be at risk.

Are you aware that your spouse may have a legal right to your business’ assets in the event of divorce? If you are considering divorce, there are a few things that you should know about protecting your small business’ assets.

Community property

Texas is a community property state, meaning that property is split “equitably” between spouses during a divorce. Even if you started and managed the business throughout your marriage, there is a good chance that your spouse still has a right to a portion of its assets under Texas law.

What factors impact business division?

There are a number of factors that impact how your small business is divided. Three common factors include:

  • Timing: whether you started your business before or after the marriage
  • Legal Agreements: whether you signed a prenuptial or a postnuptial agreement
  • Status: whether you licensed your business as a corporation, LLC or under a living trust

Timing

If you started your business after marriage, the business will typically be considered community property that will be divided between you and your spouse.

If you started your business before marriage, there is a greater chance that you will receive a larger share of the company. Up until marriage, the business will be considered separate property under your control. After marriage, the business’ growth as well as your income, is considered communal property. Therefore, any increase in business assets post-marriage may be considered community property eligible for division.

Legal Agreements:

You can protect your small business interests with a prenuptial or postnuptial agreement. Signing either of these agreements allows you to predetermine how much of the business, if any, each party has a right to in the event of a divorce.

Status:

If you turn your small business into a corporation or an LLC, the business becomes its own legal entity that can own company assets. If the business is its own legal entity, its assets cannot be given to your spouse during a divorce since you are not the legal holder.

However, if you use any of your own assets to pay for company expenses, these can be taken out during a divorce, or used to argue that the company is actually marital property.

Dividing a small business is complicated. If you are unsure how to protect your business interests, consider contacting an attorney for guidance.

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The Law Office of Natalie Gregg, P.C.
1420 West Exchange Pkwy
Building C, Suite 190
Allen, TX 75013

Phone: 972-360-9727
Fax: 972-359-0912
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