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What does Texas’ community property law mean for your business?

| Feb 5, 2021 | Property Division

During your marriage, you happily assumed the role of provider. Starting up your own business or buying a company may have been the ideal way to control your schedule and pursue the financial resources your family needed. Your company is probably a big part of your personal identity, and it’s likely the product of years of hard work and investment on your part.

If your marriage isn’t in good shape, you may want to divorce your spouse or you might worry that they are about to file for divorce from you. Since you were the one working at an investing in the company, can you protect it from claims made by your spouse in the divorce?

What does community property mean for splitting up your assets?

Texas is one of a minority of states that still applies the community property standard to marital property in a divorce. They will look at what assets and debts the spouses acquired throughout their marriage and treat those belongings and debts as community property subject to division.

If you started the company during your marriage or use income or other assets from your marriage to support the company, your spouse may have a claim to at least some of its value as community property. However, if you owned it prior to marriage or if you used nothing but separate property, like savings from before your marriage or inherited wealth, to create it and operate it, you may be able to claim it as separate property and protect it from division or liquidation.

What do the courts do if they decide to split a business?

The nature and structure of your company, as well as its value and other factors will influence how the courts handle the business in your divorce. If they view all of the company or some of its value as community property, they will try to give some of that value to your spouse.

They might order you to take out a loan to give them a portion of the company’s value. They could order you to pay maintenance to your spouse that reflects their theoretical share of the company’s income or value. They might even let your spouse keep the house you live in because the amount of equity accrued in the house is roughly equivalent to your business’s value.

If you don’t have a prenuptial or postnuptial agreement in place, then the sooner you start strategizing to protect your company in an upcoming divorce, the better your chances of succeeding.