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How to treat your small business in the context of a contested divorce

If you and your spouse are moving towards a divorce, it will be a difficult time for both of you, regardless of what the circumstances are. A factor that can make the divorce even more difficult- from an emotional and a financial perspective- is when you and your spouse own a small business together.

You both likely looked at your small business as not only a means to support your family today but as a legacy to your children and grandchildren. The company was intended to change your family tree for the better, but now you find yourself with more questions than answers regarding its future.

The attorneys with the Law Office of Bryan Fagan, PLLC, would like to take this opportunity to share with you some information regarding how small businesses can be treated in a Texas divorce. From the moment that the Original Petition for Divorce is filed until the time the judge signs your Divorce Decree, there are steps that both you and your spouse can take to ensure that the business can succeed despite your deciding to divorce one another.

Filing for Divorce in Texas

As I alluded to a moment ago, a divorce in Texas is initiated by filing an Original Petition for Divorce. This relatively simple document introduces you and your spouse to the court. If you have children or any particular concerns to address to the judge, you will include them in the Petition. Essentially, you manage your fears with your spouse and notify them that you are filing the lawsuit.

Your spouse will stay until 10:00 a.m. on the first Monday after the expiration of 20 days following the date on which they were served to file an Answer to your Petition. The Answer is frequently much shorter than the already very short Petition for Divorce.

The Answer will essentially tell the judge that you are aware of the divorce suit and are ready to proceed. A counter-petition may be filed if your spouse has claims against you in responding to the divorce petition. This allows your spouse to move on the merits of their divorce suit against you.

Standing Orders and Temporary Orders

Once an Original Petition has been filed and an Answer has been submitted in response to the Petition, you and your spouse will begin to inhabit a vast middle-ground in a divorce case that I call the Temporary Orders phase. In this stage of your case, you and your spouse will attempt to negotiate for temporary orders that run until modified later or until the judge signs a Final Decree of Divorce.

Temporary Orders restrict the behavior of both you and your spouse in areas related to your children, your home, your finances, and even the small business that is owned either mutually by both of you or by you or your spouse individually.

About your small business, the temporary orders will allow the practical business activities of your small business to proceed as usual. Still, they will likely curtail either you or your spouse from selling any portion of the company or committing the firm to any restructuring, financing, or other activity that could affect its value.

If, for instance, your spouse decides that she is no longer interested in being a part of the business, it may be agreed that you will pay her temporary spousal support for the duration of the divorce. This means that you will be paying a sum of money to your spouse until she can apply for and secure employment outside the business. It is not a given that temporary support will become spousal maintenance upon the conclusion of your divorce, but if you and your spouse agree to allow this to occur, it certainly can.

What issues to consider about your small business as you begin a divorce in Texas?

From my experience, it is essential to work towards a structure that will allow your business to continue operating throughout the divorce. Whatever is decided ultimately with the company, it does not make sense to throw the baby out with the bathwater.

Meaning: even if your marriage is not going to survive the long haul, you do not have to sacrifice the business's staying power. Please work with your spouse and their attorney to make sure the company remains viable and profitable for the duration of your case.

This means that if you are both involved in the business's day-to-day operations, you will either need to agree on how to manage your time in doing so. In the alternative, if you conclude that you will not be able to work with one another, the workload will need to be restructured to allow your business to continue operating, albeit with different leadership, at least for as long as the divorce lasts.

Is your business community or separate property?

Texas is a community property state. This means that if the property was obtained during your marriage to your spouse (with some limited exceptions) it is owned by both you and your spouse and subject to a just and right division upon divorce. There is a presumption that if the property is obtained during your marriage, it is community property; therefore, if you are in a position where you will argue that a business is separate property, you will need to overcome the presumption that the property is community owned.

A crucial part of understanding when a business was formed is to look at the sort of business that it is. If you own a corporation, you will have filed articles of incorporation with the Secretary of State. This date marks the date on which your business was formed.

On the other hand, if yours is a partnership, the original date of your business becomes a little murkier. The law in Texas is that your block was formed on the date you and your business partner agreed to start the business. The date you both formally documented that agreement is not especially relevant unless the document contains a specific formation date.

The corporation in the context of a divorce

Suppose your corporation were to be sold due to your divorce. In that case, you should be aware that any separately held stock in the corporation will be considered separate property in the divorce. In the context of your divorce, a judge can take assets owned by the corporation and divide them amongst you and your spouse.

This means that separately held property can become part of the community estate under circumstances where the failure to do so would mean an inequitable or unfair result would occur if the reorganization did not happen.

If your spouse improperly utilized the corporation in some way that damaged the financial status of your community estate, then this type of maneuvering by the judge may occur. However, be aware that if it cannot be proven that the horrible act hurt the community estate, then moving assets from the separately held corporation owned by your spouse to your community estate could not and would not occur.

Partnerships, sole proprietorships, and other small business topics to be examined tomorrow

If you own a small business and are in a divorce, I want to invite you back to our blog tomorrow to read more on this vital subject. While you cannot always predict when a divorce may be filed or control precisely how its events unfold, by reading these blog posts, you can at least have a solid understanding of the law as it pertains to small businesses and divorce. From there you can make good decisions for yourself and your family.

Any questions on this subject can be addressed to the attorneys with the Law Office of Bryan Fagan, PLLC. We offer free of charge consultations with one of our licensed family law attorneys six days a week.


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Law Office of Bryan Fagan, PLLC | Business Owner Divorce Lawyer

The Law Office of Bryan Fagan, PLLC, routinely handles matters that affect children and families. If you have questions regarding Business Owner Divorce Lawyer, it's essential to speak with a Business Owner Divorce right away to protect your rights.

A Business Owner Divorce Lawyer is skilled at listening to your goals during this trying process and developing a strategy to meet those goals. Contact the Law Office of Bryan Fagan, PLLC by calling (281) 810-9760 or submit your contact information in our online form. The Law Office of Bryan Fagan, PLLC, handles Divorce cases in Spring, Texas, Cypress, Spring, Klein, Humble, Kingwood, Tomball, The Woodlands, Houston, the FM 1960 area, or surrounding areas, including Harris County, Montgomery County, Liberty County, Chambers County, Galveston County, Brazoria County, Fort Bend County, and Waller County.

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