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Is your business marital property or not? How can you tell?

| Aug 11, 2020 | Divorce

You and your spouse have not been getting on for a long time. You feel enough is enough, and it is best that you divorce. However, there is one thing that keeps you from telling your spouse: you are worried about how divorce will affect your business.

Texas is a community property state. That means most things that a married couple owns are considered joint property and need to be shared in a divorce. Before you can figure out if your business falls under the category of “marital property” or not, here are some questions you have to answer:

  • Did you sign a prenuptial or postnuptial agreement? If you did, and you specifically included that the business was yours alone, it clears things up.
  • When did you start the business? If you started your company before your marriage, you could claim it as separate property. You may need to assess its value at the time you married and now. Any increase in value during your marriage might still be considered community property, however. 
  • What type of company structure do you have? A sole proprietorship, compared to a corporation or partnership, where there are other people involved in your business, is less likely to be distinct from your marital property. 
  • Did your spouse play a role in the business? If your spouse played some part in your business’s success, they may have a valid claim to some of its benefits, even if it was yours before the marriage. For instance, a wife could claim that by raising the family, she allowed her spouse to concentrate on making the business a success.

If the business — or some part of its value — is considered community property, what are the best ways to handle this? Unless you are happy to have your ex as a shareholder, you may be best to buy their portion out. Or trade it off against some other assets. Or sell the business and split the cash.

If you are considering a divorce in Texas, but are worried about your business, seek legal help to understand the likely outcome for your specific situation.