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How a business owner can protect a company from divorce

When a business owner in Texas gets a divorce, a spouse could be entitled to up to half of the business. However, there are steps the business owner can take to protect the company.

One step is to create a pre- or postnuptial agreement. There are three different ways this agreement could be structured. One could simply establish the business as separate property that will not be divided if the couple divorces. One advantage of this approach is that it saves the business owner from an expensive process of valuation. Another type of structure might establish that the spouse will receive a percentage of the value the business has gained since the marriage. Finally, if they are co-owners, they may want to continue running the business together. Another option is for one spouse to buy out the other.

Many people feel uncomfortable with the idea of pre- or postnuptial agreements. The organizing documents for the business can state that it is not to be divided if there is a divorce. Business owners who keep careful records will more readily be able to separate the business from marital property. This includes documenting funding sources, cash transactions, business expenses and any pay to the spouse for work done, which should be at market rates. Business owners who underpay themselves may still have to pay support calculated on a market rate salary.

In a high-asset divorce, a business is not the only asset that may be complicated to divide. There may be a significant amount of money in 401(k)s, but dividing these and pension plans require a document called a qualified domestic relations order. There may also be complications with real estate in other states and abroad and complex investments. Furthermore, since Texas is a community property state, if there is no prenup or other arrangements, assets are supposed to be divided equally.

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