If you or your spouse are a business owner facing divorce in Texas, you’re likely aware of the significant impact your business has had on both your family and finances. Whether it’s a side-hustle or the primary income source for your family, the prospect of a business owner divorce in Texas can bring about numerous unresolved questions and stressful situations for both you and your spouse. Today’s blog post from the Law Office of Bryan Fagan, PLLC, will discuss those issues in detail.
Key Considerations for Business Owner Facing Divorce in Texas
Having an experienced family law attorney at your side at the negotiating table or the courthouse can mean the difference between a fair and just outcome and one that leaves you searching for answers. For instance, do you know that discussing family businesses within a divorce requires considering several factors? Let’s walk through a few of them right now.
Is the business in question part of the community estate?
The biggest, most critical question that you and your attorney will have to ask yourselves is whether or not the business is part of the community estate at all. If involved, the State can divide your business equitably in your divorce. Remember, equitable doesn’t mean 50/50, but it allows you to present arguments to the judge about how to divide the business.
If the court determines the business to be part of your or your spouse’s separate estate, then it lacks authority to divide the business or its interests between you two. Typically, in Texas, separate property includes any assets either spouse owned before the marriage or acquired during the marriage through inheritance or gift.
Even if a business is separate property, a court is likely to consider its income as community income. However, if the income from the separate property business is inadequate, you or your spouse might pursue a reimbursement claim for unpaid work. For instance, if your spouse owned a business before your marriage and you worked in it without pay as a secretary or administrative assistant after marriage, you may have grounds for such a claim.
Your time, job skills, and effort should have resulted in more pay and income than it did. You only accepted the job that paid you nothing because your spouse owned the business and needed the help. As a result of this setup, any compensation that the community estate received from your working for the business is likely inadequate, and you should request reimbursement for a more appropriate sum.
How is the business structured?
The type of business that is being operated will impact your divorce as well. Suppose you operate your business as a sole proprietor. In that case, your business interests will consist of all the property associated with your business as well as any debts taken out to further the operations of your business.
A corporation, limited liability company (LLC), or partnership owns the property and not any individual member of the business. Therefore its assets are not appropriately characterized as either separate or community property.
What value does a family business have?
When valuing your business in a divorce, experts will analyze to estimate what a buyer would pay for your business in a “normal” transaction. Both you and your spouse will likely hire business valuation experts to present estimates to a judge or mediator, depending on your case’s stage. If your case goes to trial, remember that not all judges have extensive knowledge of the business world. In this scenario, your expert witness could become one of the most crucial figures in your trial.
How were your finances handled before the divorce?
How you handled finances before the divorce will influence the treatment of your business during the divorce. It is crucial to adhere to the well-known accounting principle that business assets should not be used for personal purposes, regardless of the reason. If your spouse owns the business as a part of their separate estate, you may be able to convince a court that the business is not operating as a separate entity but as a part of your spouse. This situation could potentially introduce the business into the context of the divorce, leading to its division by the court.
Suppose the shoe is on the other foot, and you are the business owner. You might wonder what steps to take to prevent your business from being treated as an extension of yourself in the divorce proceedings in such a scenario. The best response that I can provide in this area would be never to intermingle the affairs of your business and your home. This can be not easy, seeing as how many people work from home and sometimes even pay household bills out of their business bank accounts. Business and personal property should always remain separated.
How a Skilled Family Law Attorney Can Address Issues Proactively
A reasonable family law attorney can resolve many of these issues before they become a problem for you. If you have worked hard to start and sustain a business, you will likely want to avoid a situation where your business becomes a relevant portion of your divorce. Hiring an experienced family law attorney and sharing information ethically and honestly with your spouse minimizes the risk of your business becoming vulnerable to division in a divorce.
A good lesson to keep in mind as you begin to consider how it will conclude for business owner facing divorce in Texas is that you have more options available to you when it comes to dividing up your community estate than you do in the context of dividing your business. Mediation often leads to settlements in divorce cases, as the law empowers you and your spouse to develop solutions to the problems you face. These solutions do not have to go strictly by the letter of the law as contained in the Texas Family Code, either. If something does not work for you and your spouse, you can utilize your attorneys and the mediator to develop creative solutions to your problem.
Dividing up a business can be much more complicated, and you cannot stretch the law as much as you are in the family law world. You should meticulously handle your business finances, considering the limited options and the risk of losing thousands of dollars or more in your divorce. Although it’s tempting to let your personal and business lives converge, for the sake of your divorce, it’s advisable to keep them separate.
Questions on business and divorce? Contact the Law Office of Bryan Fagan, PLLC
The attorneys with the Law Office of Bryan Fagan, PLLC, take great pride in representing the interests of our clients to the fullest extent possible. We promise that we will place your interests ahead of our own in all areas of your case. We provide clients with advice based on years of experience and specific knowledge in areas like the one we discussed in today’s blog post.
Please do not hesitate to contact us today to learn more about business and divorce. We offer free of charge consultations six days a week here in our office for anyone with questions that need answers. From Baytown to Katy, up to The Woodlands, and down to Galveston, our attorneys have experience handling your type of case in areas all around southeast Texas. Thank you for taking the time to read today’s blog post, and we hope you will join us tomorrow as well.
Bryan Fagan, a native of Atascocita, Texas, is a dedicated family law attorney inspired by John Grisham’s “The Pelican Brief.” He is the first lawyer in his family, which includes two adopted brothers. Bryan’s commitment to family is personal and professional; he cared for his grandmother with Alzheimer’s while completing his degree and attended the South Texas College of Law at night.
Married with three children, Bryan’s personal experiences enrich his understanding of family dynamics, which is central to his legal practice. He specializes in family law, offering innovative and efficient legal services. A certified member of the College of the State Bar of Texas, Bryan is part of an elite group of legal professionals committed to ongoing education and high-level expertise.
His legal practice covers divorce, custody disputes, property disputes, adoption, paternity, and mediation. Bryan is also experienced in drafting marital property agreements. He leads a team dedicated to complex family law cases and protecting families from false CPS allegations.
Based in Houston, Bryan is active in the Houston Family Law Sector of the Houston Bar Association and various family law groups in Texas. His deep understanding of family values and his professional dedication make him a compassionate advocate for families navigating Texas family law.
