Running a business is an endeavor that merits both celebration and consistent hard work. Working to build financial stability is a common goal among business owners, and protecting your assets is understandably a critical facet of being a successful entrepreneur.
Divorce is one of life’s more difficult circumstances and takes an emotional toll on all involved. Add to this the anxiety of asset division, including assessing property rights of a former spouse, and the divorce can become exceedingly complicated.
It’s important for business owners to adopt a proactive role in protecting their rights in regard to their business in case of divorce or marital separation. For those planning marriage, in the midst of a divorce, or considering a future breakup, there are steps to help protect you and your business interests.
Separate and Community Property: Knowing the Difference
One of the first steps in protecting your business as an asset is knowing the difference between separate vs. community property, and how the variation in these two affect your business rights in the event of a separation.
Texas is a community property state. This essentially means that all income, property, and assets acquired during a marriage shall belong equally to both spouses, and will be divided equally should a divorce occur.
When a spouse wishes to keep an asset free from division, separate property must be proven. This may include:
- Property owned prior to the marriage
- An inheritance received by one spouse only
- A gift received from a third-party
- Pain and suffering portion of a settlement previously received
Taking this into account, it becomes increasingly important to determine whether the business was entered into prior to or after the beginning of the marriage. A business is considered separate property if it was started before a marriage.
After marriage, any income used toward the marriage is classified as community property. Notwithstanding, a family court will divide property with “just and right” cause, taking into account who previously owned the business.
Your Business Articulated in a Prenup
In the event you plan to marry, a prenup is an effective way to protect your business assets. A prenuptial agreement can be prepared by an experienced family law attorney, and may be used as an effective tool should litigation be required in the process of divorce.
Both spouses will have the opportunity to determine beforehand which assets they wish to categorize as either separate or community property. The law requires a prenup to exist as:
- An agreement in writing
- Executed voluntarily without coercion
- A full-disclosure agreement
- Executed by both parties; to make it more solid, preferably in front of a witness
- Within reason
An experienced family attorney will help you create an agreement that not only protects your business assets, but that will also hold up in court should it ever be required.
Evaluate How You Operate
Once you choose to involve your spouse in your business, it’s likely the business will become marital property. The role of your spouse in operating your business, whether he or she helps you run or maintain it, will determine some aspects of entitlement following a divorce.
It may be in the best interest of a business owner to exclude a spouse from the day-to-day activities to eliminate the possibility of a marital partner seeking compensation through this avenue.
Many business owners also assume that paying themselves less salary will leave more to be divided in a divorce. However, a lower salary with money being invested elsewhere in your business may allow for a spouse to claim that he or she was excluded from the benefits of the business, and therefore may argue for additional money.
Seek Counsel From An Experienced, Well-Respected Divorce Attorney
Your business is your life’s work, and your rights and assets should be protected. The Houston area Law Offices of Douglas Ray York, P.C., help high-net-worth individuals navigate the challenges and complexities arising from divorce.
A legal separation is not easy, and in cases where business assets exist, it’s important to receive fair and adequate representation in court to protect your best interest. If you find yourself at risk of losing your assets as a result of divorce, or are looking to proactively protect your business assets, contact the Law Offices of Douglas Ray York, P.C., today to help ensure your long-term financial stability.