How to Protect Your Small Business in a Divorce Settlement

Divorce is never easy, but when you own a small business, it can be particularly complicated. Along with personal assets, your business may be subject to division during the settlement. In Texas, a state with community property laws, the division of assets in a divorce can directly affect your business, its value, and your role in it. 

Knowing how to protect your small business is essential. At Thaler Law, we’re dedicated to making the divorce process as stress-free as possible for our clients. Here, we’ll walk you through the steps to take in order to safeguard your business during the divorce process.

Texas Divorce Laws and Community Property

In Texas, property division during a divorce is governed by community property laws. This means that, in most cases, assets and debts acquired during the marriage are considered joint property, to be divided equally between the spouses. 

This includes not only personal property, such as real estate and savings, but also business interests. If you own a small business, it is important to understand how it will be classified and evaluated in the divorce settlement.

Separate vs. Community Property

Business ownership can be a tricky issue when it comes to property division. A business that was started before the marriage may be considered separate property, but any increase in value during the marriage could be classified as community property. 

The court will need to determine what portion of the business is separate and what portion is community property, which can involve intricate financial analysis and expert testimony. This determination can significantly impact the overall divorce settlement.

Steps to Protect Your Small Business

To avoid jeopardizing your small business during a divorce, there are four proactive steps you can take. The earlier you begin planning, the better your chances of minimizing the impact on your business.

Keep Personal and Business Finances Separate

One of the most effective ways to protect your business is to keep personal and business finances separate. This includes using separate bank accounts for personal and business funds, keeping clear records of income and expenses, and making sure that any business-related transactions are documented properly.

If your spouse has access to your business accounts or finances, this could blur the line between community and separate property. Keeping things distinct makes it easier to argue that the business should remain separate property in a divorce.

Establish a Prenuptial or Postnuptial Agreement

While this may not be an option if divorce proceedings are already underway, creating a prenuptial or postnuptial agreement can help protect your business. These agreements allow you and your spouse to outline how assets, including your business, will be divided in the event of a divorce. 

In Texas, these agreements can be enforceable, so long as they are fair and not signed under duress. Consulting with an experienced family law attorney about drafting an agreement can prevent future conflicts and safeguard your business interests.

Keep Accurate Records of Business Ownership and Growth

If your business was started before your marriage, maintaining detailed records of its valuation and growth is vital. These records should show when the business was founded, its original value, and any profits or losses over time. 

If your business has increased in value during your marriage, you'll need to establish how much of that increase is due to your efforts versus external factors. This documentation can be used to support your case during the divorce settlement process.

Conduct a Business Valuation

A proper business valuation will determine the true worth of your business, which can be crucial in a divorce. This is particularly important if the business is classified as community property, as it will affect how assets are divided. You should hire an experienced professional to conduct the valuation, such as a certified business appraiser or financial professional. 

The valuation should account for all aspects of the business, including tangible assets, goodwill, intellectual property, and liabilities. An accurate and well-documented valuation can serve as a powerful tool during negotiations and help prevent disputes over the business’s true value.

Getting Help With Your Divorce

Family law is a challenging field, and handling divorce proceedings with a business involved requires the knowledge of a skilled family law attorney. A family law attorney can help you understand your rights and obligations, negotiate terms, and make sure that your business interests are protected.

They can also advise you on whether the business should be classified as separate or community property and help you gather the necessary documentation to support your position. With their guidance, you can develop a strategic approach that minimizes disruption to your business and supports a fair, efficient resolution.

Choosing the Right Attorney

When looking for an attorney, find one who has experience in handling divorces involving small businesses. They should be familiar with Texas family law and have a background in business valuation and asset division. The right attorney will also be able to recommend financial professionals and appraisers to support your case.

What Happens If the Business Is Divided?

In some cases, your business may be subject to division, either by selling it and dividing the proceeds or through other arrangements. This can be particularly challenging if your business is the primary source of income for your family or if you and your spouse are both involved in the business.

Buyouts and Business Continuation

A buyout agreement may be one way to handle a business division in a divorce. In this arrangement, one spouse buys out the other spouse’s share of the business, allowing the business to continue operating under the ownership of one person.

Alternatively, if the business cannot be easily divided, it may need to be sold, and the proceeds divided between the spouses. This outcome can be disruptive, especially for businesses that rely heavily on the owner's direct involvement or have ongoing client relationships.

Custody, Alimony, and Child Support Considerations

In addition to business division, a divorce settlement in Texas will often involve decisions regarding child custody, alimony (spousal support), and child support. These decisions can also impact the financial stability of both spouses, which may affect the business.

A family law attorney can help make sure that any obligations related to child support or alimony are factored into the divorce settlement without unduly harming the business’s finances. With strategic planning, it’s possible to meet your legal responsibilities while preserving your business’s ability to operate and grow.

Protecting Your Business From Financial Impact

If spousal support or child support payments are significant, they can have a lasting impact on your ability to reinvest in or grow your business. Discuss with your attorney how best to structure these obligations in a way that doesn't undermine your business operations.

In some cases, it may be possible to negotiate a fair but manageable spousal support or child support agreement that takes your business’s financial health into account. This approach not only helps preserve your company’s long-term viability but also makes sure you can meet your legal responsibilities without compromising day-to-day operations.

Speak With an Experienced Family Law Attorney Today

Divorce can put your small business at risk, especially in Texas, where community property laws may affect how business assets are divided. At Thaler Law, we help business owners in Georgetown, Texas, protect what they’ve built. Whether your business was started before or during the marriage, we guide you through legal intricacies to safeguard your ownership, income, and future. Contact us today to learn how we can help protect your small business.