Protecting Your Business in the Event of Divorce

Business divorce (or dividing a business between divorcing spouses) is becoming more common. It is also interesting to note that divorces often occur during times of economic growth.

In fact, according to a recent CNBC article, being rich may increase your odds of divorce.

In some marriages, one spouse or both spouses have a privately owned or family owned business. It may be their largest asset and a primary focus during divorce. If the judge decides that the business is marital property, then spouses will have to divide the property.

Marital Property and Property Division in a Business Divorce

If your business expanded and became more valuable during the marriage, its increased value may be part of marital assets. During property division in Texas, both spouses’ income is considered marital property. Typically, the business and the income received from it are subject to property division. The exception is if you had other legal arrangements in place making the business separate property,

If your spouse was a business partner, worked in the business, contributed to it, the business may be marital property. If a judge awards your spouse ownership interest, then the business is subject to property division. Do you want your spouse (and your spouse’s future husband or wife) to remain business partners? If not, some settlement options might include:

  • The right to buy out your spouse’s share in the business
  • A settlement that provides your spouse with other marital assets that equal the business value
  • A settlement that provides a long-term payout with interest for the spouse’s share of the business

Protective Measures for Business Owners Prior to Marriage

When forming your business it is wise to create a business entity. You can also establish shareholder, partnership or business operating agreements that include provisions to protect the owners in the event of divorce. Business agreements could include:

  • A requirement that shares cannot be transferred without the agreement of company partners or shareholders
  • Offering business partners or shareholders the option to purchase shares or interest of one or both divorcing parties. (Appropriate if other owners want the continued ability to control the business)
  • A stipulation that unmarried shareholders establish premarital agreements that waive a future spouse’s interest in the business

An attorney experienced in handling business divorce can answer your questions and provide valuable legal guidance.