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How does divorce affect a business in a community property state?

| Jan 21, 2021 | Firm News

Under Texas community property laws, your business may fall into the hands of an owner who may not have much of a desire to manage it. As noted by Business.com, you may find your ownership interest diluted if your ex-spouse receives stocks in your company through a divorce settlement. 

When a spouse takes over a business as a controlling shareholder, he or she may receive a large enough voting percentage to influence its management decisions. A sudden change in ownership structure carries a strong potential to affect a company’s customers, employees and revenue streams. 

How may I protect my ownership in a business?

All assets obtained during marriage become part of your shared community property, which may split in half during your divorce. There are, however, exceptions; a business that you inherited or stocks you received as a gift generally classify as your separate property. 

If you own and operate a business by yourself, you may require a written agreement to verify it is your separate asset. A Texas judge may also consider how much financing or labor that you and your spouse each contributed to the business. Documents such as receipts and income tax returns may help prove the amount of time and funding each party supplied. 

How may I sell my business during a divorce?

A professional third-party valuation may provide you with a fair market value of how much your business could sell for. After paying off business debts and taxes, however, the divorce process may require you to split the proceeds with your spouse. 

Without a negotiated agreement, a divorce may require you to divide the business between you and your soon-to-be ex-spouse. To maintain full ownership, however, you may have options to trade other marital assets for your spouse’s share of the business.