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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.

It is likely that you both 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 business was intended to change your family tree for the better but now you find yourself with more questions than answers in regard to 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 your Divorce Decree is signed by the judge, there are steps that both you and your spouse can take to ensure that the business is able to succeed in spite of 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 the filing of an Original Petition for Divorce. This is a relatively simple document which introduces you and your spouse to the court. If you have children or any special concerns to address to the judge you will include them in the Petition. Essentially you are addressing your concerns with your spouse and notifying him or her that you are filing the lawsuit.

Your spouse will until 10:00 a.m. on the first Monday after the expiration of 20 days following the date on which he or she was served to file an Answer to your Petition. The Answer is often times 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. If your spouse has claims to assert against you in responding to the divorce petition a counter-petition may be filed. This allows your spouse to proceed on the merits of their own 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 a Final Decree of Divorce is signed by the judge.

Temporary Orders basically 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.

In relation to your small business, the temporary orders will allow the reasonable business activities of your small business to proceed as normal but will likely curtail either you or your spouse from selling any portion of the business or committing the business 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 to 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 either 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 in relation to your small business as you begin a divorce in Texas?

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

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

This means that if you are both involved in the day to day operations of the business you will either need to come to an agreement on how to manage your time in doing so. In the alternative, if you come to the conclusion that you will not be able to work with one another, the workload will need to be restructured to allow for 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 the course of 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 the course of your marriage that it is community property. Therefore, if you are in a position where you are going to argue that a business is your separate property you will need to overcome the presumption that the property is community owned.

A key part to understanding when a business was actually formed is to take a look at the sort of business that it is. If you own a corporation then 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 origin date of your business becomes a little murkier. The law in Texas is that your partnership was formed on the date you and your business partner agreed to form the business. The date on which 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

If your corporation were to be sold as the result of your divorce 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 has the ability to 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 were to not occur.

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 bad 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 important subject. While you are not always able to predict when a divorce may be filed or to 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 business 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 important 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 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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