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What Every Entrepreneur Needs to Know About Community Property Division

When it comes to dividing property in a divorce scenario, one of the most important parts of that process is understanding community property laws in Texas. In our State, marital property division comes down to what property is community property and what property belongs separately to either you or your spouse. Community property is largely any property purchased or acquired during the divorce by either you or your spouse. Separate property is any property that either of you owned before getting married. This is a cut-and-dry assessment of community property versus separate property, but it will set us up to talk about how property, like a small business, can be subject to division in a divorce.

You hold the power when it comes to property division

Before we dig deeper into how community property laws will influence your divorce, I wanted to point out that you and your spouse hold the keys to how your property is going to be divided. This is not a situation where you and your spouse are going to stand by helplessly as a judge divides up all your property without either of you have any say. That is not how divorces work in Texas. Rather, you and your spouse are going to have plenty of opportunities and time that you all can choose to take advantage of when it comes to negotiating how to divide up community property. Whether you can take advantage of the time and opportunities afforded you is another question altogether.

Community property is a subject that is only discussed in terms of division at a trial. You and your spouse may have a temporary order hearing, but that setting is more associated with acclimating yourselves to living a divorced life. Splitting the kids’ time between the two of you, paying bills for the household in the meantime, and determining if spousal support and/or child support are going to be paid. Temporary possession and use of community property may be determined but other than that there will be no division of community property in a temporary order hearing. A judge will not be making determinations on what is separate property versus what is community property.

What this means is that you have until the end of your divorce to determine through negotiation with your spouse what is community property. This is the first part of the decision-making process that you all have submitted yourself to by filing for divorce. Identifying what property is out there and what needs to be divided is a key part of this subject. You and your spouse are going to have time to go through your home, your records, your financial statements, etc. to determine what property needs to be focused on in your divorce. This is like doing an inventory of all your property. You do not necessarily need to start thinking about “whose” property this is quite yet. All you need to do at first is determine what property is out there.

Nothing moves in a divorce unless you cause it to move

A favorite radio personality who hosts a personal finance-related show recently said something on the air that resonated with me. He noted that, in the world of personal finance, nothing moves unless it is shoved. He was relating that your finances will not change unless you do something to cause that change to occur. Meaning you cannot sit idly by and expect a positive change to your situation. Nobody is going to do the work for you. You are the one who can create opportunities to benefit yourself.

I think that is true in the context of personal finances as well as in a divorce scenario. You have the power to be able to make a transition happen in your case. That transition is going away from the mindset that a judge must decide the outcome of your case for you, towards the idea that you and your spouse can do so yourselves. A lot of people shy away from thinking that they have the power to do so in large part because it involves more work and more discomfort.

Working with your spouse to divide community property is not easy. It does take more of a concerted effort to sit down and talk with your spouse, convey settlement offers, and then wait for a response. That you will be doing these negotiations through your attorneys can make the whole process even more time-consuming and stressful. The last thing you may want to do is take the time to engage in settlement negotiations that are not going to produce a resolution to your case. Many people in your shoes just don’t want to put forth the effort. I think this is a huge mistake. You can use the opportunities presented to you in the case to try and settle your case rather than go to trial. Here is why that is so important.

When you sign up to go to a trial you are effectively telling yourself and your spouse that a family court judge knows better how to divide up property and arrange your lives, post-divorce, than the two of you do. I’m not saying that this is exactly what you think but that is basically what you are admitting to yourselves. That you could not come up with a better arrangement for yourselves than having a third party decide the outcomes speaks to a couple of things. One, it could speak to the complexity of your case. Every divorce is unique. Generally speaking, the more complex your case is from a property division perspective the more likely it is to go to trial. Complexity adds to the difficulty and the emotion involved in a case. So, there is a slight chance that you may have a rare divorce where the circumstances truly are so difficult that you are unable to negotiate your way through them.

However, most of the time you and your spouse have the ability, if not the desire, to come together and settle your case. Dividing up a small business in your divorce does not need to be a situation that proves impossible. There are a lot of ways to factor the division of your business into a divorce. Additionally, you may not have even begun to consider that your small business may not need to be touched in the divorce. Do you have other assets that could substitute for the business in terms of value and asset division? Did you know that you can substitute other assets for a business and trade the value that way? There are so many creative ways for you to avoid a situation where you may have to divide up your business.

The best way for you to figure out how to arrive at creative property division solutions is to work with an attorney who can show you those options and give you a different perspective on your case. The attorneys with the Law Office of Bryan Fagan have the experience, know-how, and heart of a teacher that you need in your corner during a divorce. Having the heart of a teacher means that our attorneys will not dictate to you what to do. By the same token, we will not give you a thirty-second explanation for a critical opinion that we are offering. Rather, we take the time to communicate clearly and to teach our clients so that they may make the best decisions possible for themselves and their families.

If you find yourself with questions about the topic of community property division, business valuation, or anything else regarding a divorce please contact the Law Office of Bryan Fagan today. We will always treat you and your circumstances with the utmost respect. We want to provide you with information that you can use to make good decisions for yourself and your family. We understand that you are going through a difficult situation, and we are sensitive that the way you are approached with new information is critical to your being able to make good choices. With that said, here is some information on the division of a business and how you as an entrepreneur (or the spouse of an entrepreneur) may approach your divorce.

How do you divide up the business interest?

If you do need to divide up your small business the question that many people have is how do you pull the money out to distribute it to your spouse? The most used method to pay your spouse their share of a small business is to buy him or her out of the business. This is a simple method that is not dissimilar to buying your spouse out of their interest in a home or piece of real estate. Rather than having him or her remain on in some capacity within the business you can either pay your spouse at the time of the divorce or agree to divide up the business interest over a period in smaller payments. It all depends upon how much cash on hand you have and how much your spouse is getting in the property division.

For this reason, if you anticipate having to buy your spouse out of your business it may be a good idea for you to start to accumulate cash if you can do so. Everyone finds themselves in different situations as far as cash is concerned. You may be limited as far as what you can do as far as selling items or liquidating assets during the divorce. However, you and your attorney may be able to work with your spouse to figure out a way for you to liquidate an item during the divorce. While selling community property during the divorce may not be the preferred method of getting you the cash you need your spouse may prefer this because it allows him or her to be able to be made whole sooner rather than later.

Next, the two of you may be able to negotiate a series of smaller payments over a certain period. This can be done in a couple of different ways. For one, you may agree to pay your spouse a specific sum of money over a specific period. This sets you up for regular, monthly payments until the entirety of their interest in the business is paid off. Many people like this method because it allows for predictable payments on a set schedule. Your spouse cannot come back and ask for more money or for you to pay the money faster now that you have a schedule as laid out in your Final Decree of Divorce.

On the other hand, if your business has variable income then this may not be the best plan of attack for you to make. For example, let’s say that you plan to pay your spouse $5,000 per month for 36 months to pay her the $180,000 interest in your small business that she won in the divorce. That sounds good and well until you take into consideration that your business may be seasonal or may fluctuate a great deal due to circumstances that are largely beyond your control. If that is the case, then you may be better off negotiating a little more outside the box if you are not comfortable with a specific payment amount that must be made monthly. What other options may be there for you and your spouse to choose from?

For one, you could offer her monthly payments that are based on a percentage of the total income that your business generated. 10% of monthly revenue or income could be offered to your spouse in the divorce negotiations. The more money you make, the more she gets. That would put the ball in her court as far as deciding how strongly she believes in the profitability of the business. At this stage of the divorce, she probably has a good idea of what your revenues have been over the past several months so this kind of negotiation would not be that far-fetched. If money is not an immediate concern for you and she is comfortable with taking a risk that the payout may take a tad longer or shorter otherwise available, then this may be an option worth pursuing.

A less common option that people in your position may choose to employ in their divorce is to make your spouse a co-owner of your business. There are obvious downsides to this type of arrangement not the least of which is that you and your spouse will need to remain on good working terms if you are effectively going to be working with him or her. In some situations, this would be acceptable given that you and your spouse may have a cordial relationship with one another period if the two of you can be civil with one another then there probably is no downside to this type of arrangement.

On the other hand, you and your spouse have recently gone through a divorce and the last thing either one of you may want to do is see each other regularly in the workplace. Additionally, if your spouse does not have any sort of skills or experience that would assist you all in the workplace then this may not be an ideal option, either. However, if the plan is for her to be a figurehead owner and merely collect a paycheck and remain on the payroll of the business then that may be an option worth pursuing further.

Unlike issues regarding minor children, property division in a divorce is much more likely to be final upon the conclusion of your case. Modifications tend to occur with some frequency on children’s issues but much less so when it comes to property division. You should be sure that the arrangement you and your spouse create in your divorce is suitable for both of you. In many ways, property division issues cannot be modified and typically work well for the business owner especially if your business becomes more profitable in the future. That way your spouse cannot come back in a few years and attempt to renegotiate or modify the property division in your divorce due to the net earnings of your business. Having an experienced family law attorney to help guide you and provide you with a baseline of knowledge is incredibly important. The first step towards learning about your options when it comes to legal representation in a divorce is to reach out to an attorney with our office for a free-of-charge consultation.

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  1. Community Property in Texas: What you need to know before you get divorced
  2. What is community property in Texas?
  3. Community property issues in Texas divorces: Wasting of assets by spouses
  4. How does a judge divide up community property in a Texas divorce?
  5. What happens if you and your spouse mix community and separate property?
  6. Characterizing your assets as community or separate property through tracing
  7. Community Property Essentials for Texas divorces
  8. Community Property and Credit in Texas Divorces
  9. Community Property Law in Texas
  10. Family Law Cases in Texas: Marital Property and the community presumption
  11. Reimbursement of the Community Estate: Continuing the Discussion on Divorce
  12. Texas Divorce Overview: Dividing Community Property and Debts
  13. Dividing community property in mediation: What can be done to settle your divorce in Texas
  14. The community estate in a Texas Divorce: Where is all of our stuff going?
  15. Distinguishing between Community and Separate Property in Texas divorces
  16. Life insurance and its role in property division as part of a Texas divorce

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At the Law Office of Bryan Fagan, PLLC, the firm wants to get to know your case before they commit to work with you. They offer all potential clients a no-obligation, free consultation where you can discuss your case under the client-attorney privilege. This means that everything you say will be kept private and the firm will respectfully advise you at no charge. You can learn more about Texas divorce law and get a good idea of how you want to proceed with your case.

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