If you or your spouse own a business that is part of your community estate, then you probably know just how much of an impact that business has had on your family and your finances. Whether it is a side-hustle or the primary source of income for your family, the prospect of a divorce can lead to unresolved questions and stressful situations for you and your spouse. Today’s blog post from the Law Office of Bryan Fagan, PLLC, will discuss those issues in detail.
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- are you aware that several factors need to be considered when discussing family businesses within a divorce? 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 it is, then it is subject to be divided up in your divorce in a manner that is and equitable. Note that equitable does not mean 50/50, but it will allow you to at least present arguments to the judge on how the business should be divided.
On the other hand, if the business is determined to be part of your or your spouse’s separate estates, then the court does not have the authority to divide the business or its interests between you and your spouse. Generally speaking, a separate property in Texas is any property you or your spouse owned before your marriage or was acquired during your marriage either by inheritance or gift.
Income related to a business is likely to be held by a court as community income even if the business generated is separate property. However, suppose the community estate’s income from the separate property business is inadequate. In that case, either you or your spouse may be able to pursue a reimbursement claim for time spent working.
For example, suppose that your spouse owned a business before you and got married. Still, once you were married, you worked without pay as a secretary/administrative assistant type worker. 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 attempting to measure the value of your business in a divorce, an analysis will be done to attempt to determine what a buyer would purchase your business for in a “normal” transaction. Both you and your spouse will likely hire experts in the field of business valuation to present estimates to a judge or mediator, depending upon the stage of your case. If your case does make it to a trial, keep in mind that not all judges are well versed in the business world. With this said, your expert witness could end up being one of the more critical people involved in your trial.
How your finances were handled before the divorce will affect how your business is treated during the divorce. A well-known accounting principle is that business assets should not be utilized for personal purposes, no matter 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 could potentially bring the business into the context of the divorce and cause it to be divided up by the court.
Suppose the shoe is on the other foot, and you are the business owner. In that case, you may be asking what you can do to prevent yourself from being put into a situation where your business is being treated as an extension of yourself for your divorce. 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.
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. By hiring an experienced family law attorney and sharing information with your spouse ethically and honestly, you can minimize the risk of your business being made vulnerable to division in a divorce.
A good lesson to keep in mind as you begin to consider how your divorce will conclude 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 for a divorce results in settlements the vast majority of the time because you and your spouse are empowered by the law to come up with solutions to the problems that 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. With limited options and the potential for unnecessarily losing thousands of dollars or more in your divorce, it s is worth being meticulous about how your business finances are handled. It is tempting to let your personal and business lives converge, but for the sake of your divorce, it is advised that you do not do so.
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.
