What you need to know about business ownership and divorce

Get answers to common questions about business ownership and divorce. Learn how to protect a business in a divorce.

Dividing assets in a divorce is often complex. However, when there is a business involved, things can become even more complicated. A business or any ownership in a business is an asset that the court must consider when granting a divorce. Here are some common questions people have about how a business is handled in a divorce.

Will the court consider my business a divisable asset?

The court will consider a business if it is a marital asset. To be a marital asset, the business must have been started or converted into a corporation during the marriage, or funded with community funds money, whether or not it is used to support the family.

How is division of a business handled?

Texas is a "no fault" community property state, which means that the court will tend to split all assets 50/50, in the absence of proven fault in the breakup of the marriage. It does not consider fairness in the division of assets. The court will consider both spouses as equal business owners of a community-owned business, whether both spouses actually work at the business or not.

How can I prevent the loss of my business?

It can be tough to hold onto a business in a divorce. If it is a small business, one spouse may be able to buy out the other spouse or pay the other spouse using other assets.

One of the best ways to protect a business is to have a partnership or an LLC with a "Buy-Sell Agreement". In the business agreement, a person can stipulate what happens in the event of an owner's divorce. This can protect the business. It may also allow the divorcing owner a chance to get back into the business after the divorce or to hold onto the business ownership shares despite the divorce.

The best way to protect a business, though, is by having a prenuptial agreement, according to the National Federation of Independent Business. This document spells out ownership and what happens with the business in the event of a divorce. It should be created with the help of an attorney and meet all applicable laws to ensure it is enforceable.

There is also the option to create a post-nuptial agreement, to accomplish the same purpose, but these also require care in crafting to ensure they are fair and legally sound.

If you are a business owner who is considering a divorce, you should seek expert legal counsel as soon as possible from an experienced Board-certified Family Law expert attorney. Working with such an experienced attorney can help you to have a better chance of retaining your business and getting a fair settlement.