Running a business can be both exciting and stressful. When you put your heart and soul into building a successful company, the last thing you want to worry about is how a divorce might affect it.
In Texas, divorce can be especially complicated if you own a business. At The Cook Law Firm & Associates PLLC, we understand the challenges that business owners face during a marital breakup. As a San Antonio divorce lawyer, Justin D. Cook is here to offer helpful guidance on protecting your hard-earned assets.
Why Do Texas Business Owners Need Extra Protection in a Divorce?
Texas is a community property state. This means that most property and assets collected during the marriage are considered “community,” belonging to both spouses. If you started or grew your business while married, at least part of its value might be considered community property. As a result, your spouse could have a claim to some of it.
Business owners need extra protection because the value of a company can be significant. You might have inventory, real estate, or other assets that could be divided or awarded to your spouse. Also, if you and your spouse disagree about how to handle the business, it can drag out the divorce process, creating stress for everyone involved. Having a plan in place can keep you focused on running your company and looking out for your future.
Are Prenuptial or Postnuptial Agreements Helpful?
When it comes to protecting business assets, prenuptial and postnuptial agreements often stand out. A prenuptial agreement is a legal contract signed before marriage, while a postnuptial agreement is signed after the wedding. Both documents can state clearly that your business is your separate property and not subject to division if there is a divorce.
- Prenuptial Agreement: If you own a business before you get married, a prenuptial agreement can show that the business and any growth or profits remain your separate property.
- Postnuptial Agreement: If you have already tied the knot but want to clarify ownership, you can sign a postnuptial agreement. This legal tool can help define how a business will be treated if you and your spouse decide to end your marriage.
These agreements work best when both spouses disclose all relevant information and each spouse has a chance to consult a lawyer. Courts usually want to see that no one was forced or tricked into signing. While having a prenuptial or postnuptial agreement does not guarantee zero disagreements, it is a strong layer of protection if a divorce ever happens.
How Does Forming a Separate Business Entity Help?
Another strategy to protect your business is to establish a separate legal entity, such as an LLC or a corporation. When you create a separate legal entity, you lessen the chance that your personal assets and business assets get mixed up.
For example, suppose you set up an LLC to operate your small manufacturing company. You open a dedicated business bank account, pay yourself a reasonable salary, and make sure to keep personal and business finances apart. This separation can help prove that your company should be treated as separate property.
In some instances, business owners also consider using trusts—like a Domestic Asset Protection Trust (DAPT)—to hold the company’s assets. The idea is to remove the business from your personal ownership so that, in a divorce, the court is less likely to treat it as community property. You should still follow the trust rules and maintain clear records.
Will a Buy-Sell Agreement Keep the Business Safe?
A buy-sell agreement spells out what happens to an owner’s interest in a business if certain events occur, such as a divorce, disability, or death. If you have business partners, a buy-sell agreement might include a clause that allows the business or other partners to buy out your spouse’s share if a divorce occurs. This can help prevent a situation where your soon-to-be ex-spouse ends up with part of the business and the right to make decisions or even sell their share to someone else.
Even if you are the only owner, you can add clauses in your business’s governing documents that state your spouse cannot obtain ownership or decision-making power through a divorce. While this will not always remove the entire property claim, it can help limit your spouse’s access to control or future growth of the company.
Should You Keep Your Finances Separate?
If you co-mingle personal money and business assets, it is much easier for a spouse to argue the entire business is community property. For this reason, it is important to show that the company is treated as separate.
When possible, consider these steps:
- Open a separate business bank account.
- Use clear accounting software or methods to record all business-related income and expenses.
- Avoid depositing personal funds into business accounts (or vice versa), except as proper capital contributions with clear documentation.
By keeping your financial records neat, you can prove to the court that you have always intended to keep the business separate from marital assets. This habit also simplifies tasks like business valuation or dividing other marital property if a divorce occurs.
Does Your Spouse’s Role in the Business Matter?
Sometimes, a spouse is a key part of the company. They might assist with day-to-day tasks or provide important funding. If that is the case, they may have a stronger claim on the business during divorce. On the other hand, if your spouse rarely helps out or you make sure to pay them a fair wage when they do assist, this can be a sign the business is your property alone.
When possible, some business owners choose to distance a spouse from important decision-making or formal roles in the company. Doing so can limit their claim in case of divorce.
However, every family situation is unique. If your spouse works with you full-time, you could consider an official employment agreement clarifying job duties and compensation. This can be a double-edged sword, though, so speak with a San Antonio divorce lawyer for specific guidance.
What About Business Valuations?
If your divorce case goes to court, a judge will want to know the fair market value of your business. A valuation is a professional estimate of how much the company is worth. Having a neutral valuation professional can be helpful so neither spouse feels the numbers have been manipulated.
Valuation experts look at factors like income, assets, debts, cash flow, and market conditions. Although valuations can be time-consuming or expensive, they are often vital in divorces that involve businesses. After all, you cannot negotiate or protect something if you do not know what it is worth. In some instances, you may want a second opinion or an outside review if you think the first valuation is not accurate.
Can You Offer Other Assets Instead of Splitting the Business?
One way to protect your business is to “offset” it with other marital assets. In other words, instead of giving up half of your business, you might give your spouse a larger portion of other community assets—like real estate or investments—equal to the value of their stake in the business.
This approach can be a smart way to keep the company intact if you have other property or funds to negotiate with. However, you should be sure that your spouse agrees to it. Also, you will want to make certain the math is correct so you do not end up paying more than you owe.
Ready To Protect Your Business? Contact a San Antonio Divorce Lawyer
Divorce can feel overwhelming, but it does not have to mean losing control of your business. By planning ahead, keeping finances separate, and consulting with the right legal professionals, you can shield your business from unnecessary risks.
At The Cook Law Firm & Associates PLLC, we are committed to helping you find the best solutions for your unique circumstances. Our team understands that every divorce is different—and your business likely took years of hard work to build.
If you have questions about protecting your business assets or need immediate legal guidance, reach out to a trusted San Antonio divorce lawyer today. Call us at 210-740-0281 or contact us online to schedule a consultation. We are here to stand by your side and fight for your interests, so you can focus on what matters most—running your business and securing your future.