Who will continue to run our business during a divorce?
Currently, Texas is considered the number one state to start a small business, according to a study by WalletHub. With so many businesses flocking to the state, it is the sad reality that some of these business owners will go through a divorce. Any divorce can be complex, but divorces involving a business will come with a myriad of important issues to address. Our Midland, Texas divorce lawyers answer some of your important questions surrounding divorce and your business below.
Are businesses community assets?
Property owned by the spouses will be categorized as either separate or community property. Separate property will remain in the ownership of the individual spouse, while community property will be divided during the divorce. At times, it can be difficult to determine whether a business is separate or community property. First, the inception date of the company must be addressed. If the business was formed before the start of the marriage by one spouse, it will typically remain solely owned by that spouse. If it was formed during the marriage, it will usually be a community asset. There are exceptions to this general rule, however, as when the business is founded with separate assets acquired before the marriage or during it by gift or inheritance.
Per Texas law, only the interest in the corporation or LLC is divided during a divorce, not the assets themselves. The exception to this is sole proprietorships, in which the assets can be divided individually. Further, even when a corporation or partnership interest is deemed separate property, the profits received during the marriage will typically be community property.
Managing and Dividing the Business
To divide the interest of the business during a divorce, it will be necessary to assign it a value. Finding the fair market value of a business will at times require the assistance of an expert in the field. During the divorce, the business will generally continue to operate as it always has, as dictated by the entity’s corporate formation documents. If serious concerns exist as to whether the business can continue to operate or a party believes funds may go missing, the court could potentially assign a receivership. A receivership will allow an appointed trustee to manage and control the business. This step should only be taken under limited circumstances, as advised by your knowledgeable divorce lawyer.