While it may not be pleasant to think about, sometimes a divorce can have a dramatic impact on a Texas business if it is owned by both spouses. Sometimes a couple may have a lot of their wealth tied up in the business, which can result in the company being sold to make a settlement. A recent article by Marketwatch lays out possible ways you can protect a business you partially own from the consequences of a divorce.
If you create a business before entering into marriage, Texas law allows you to draft a prenuptial agreement that lays out what will happen to the business in the event you divorce. A prenup should be in writing and carried out voluntarily in the presence of witnesses. If done right, a prenup can even counteract the property division laws used in community property states, which includes the state of Texas.
However, if you decide a prenup isn’t for you, or if you neglect to sign one, you can also create a buy-sell agreement, or a buyout agreement as it is commonly known. A buy-sell is a contract made between co-owners that handles a situation in which one owner dies, or if the owner decides to leave the business or is forced out. In the case of a divorce, a former spouse can be required to sell their interest in the business back to the company’s remaining owner at a predetermined price. This price can be set by a particular method of valuation.
Additionally, you can choose to remain in the business with a former spouse. Even though a familial relationship has ended, it does not mean a divorced couple cannot still work together professionally. However, with the fractious nature of many divorces, working together amicably might not be a suitable option. Conversely, a divorced couple may elect to sell the business and split the profits in a mutual fashion. While many business owners would want to avoid ending their operation, this option would sever financial ties with a former spouse and give both parties the ability to restart in the business world anew.
This article is intended to educate readers on how divorce can affect a spouse’s ownership in a business and is not intended as legal advice.