Protecting Your Business in a Texas Divorce

Can my wife get half of my LLC in a divorce?

Not automatically, and rarely as shares. If the LLC was formed during the marriage with community funds or effort, the membership interest is community property and its value is part of the just-and-right division under Texas Family Code § 7.001, which is not always 50/50.

The court divides the membership interest, not the LLC's assets. Under the Texas Business Organizations Code, a member has no interest in specific company property. In practice the owner usually keeps the LLC and the other spouse receives other property or payments for the community share. The same rules apply when the owner is a wife and the spouse is a husband.

Can my husband claim ownership of a business I started before marriage?

No, ownership of a business you owned before marriage stays with you. Texas Family Code § 3.001 makes property owned before marriage separate, and Texas decides character at the moment the right to the property first arose.

Starting the company before the marriage matters in other ways too. Shares or membership interests you held on the wedding day stay separate, and so does growth in their value. New interests acquired during the marriage with community money can be community. And if there is no entity, because it is a sole proprietorship, assets bought during the marriage with business income are presumed community.

Keep the records that prove it: formation documents, early tax returns and anything showing the ownership on the date of marriage.

Can my spouse claim business growth during our marriage, even if they never worked there?

If the business is community property, yes: all of its value is divided, and it does not matter that your spouse never worked there. Community property belongs to both spouses regardless of who earned it.

If the business is your separate property, the growth stays separate, but the community may have a reimbursement claim under Texas Family Code § 3.402. That claim applies when community time, toil, talent or effort enhanced the value of separate property and the community did not receive adequate compensation. Paying yourself a reasonable salary during the marriage helps show the community was compensated for your work.

Do I have to sell my business to pay my spouse?

Usually not. Texas courts have broad power to award the whole business to one spouse and balance the division with other property, a money judgment or payments over time. Selling an operating company is rarely the outcome either spouse wants.

• Offset with other community property, such as the house, investments or retirement accounts.
• A larger cash payment to the other spouse instead of giving up shares, funded by savings, a loan or a refinance.
• Payments over time under a promissory note, secured by a lien or other collateral.

A business owner can negotiate a larger cash settlement or a bigger share of other assets in exchange for keeping all the shares. Check that the business can carry any payments, and compare the after-tax value of what each spouse receives.

Can I keep running my business while the divorce is pending?

Usually yes. Texas Family Code § 6.502 lets a court award a party exclusive control of their usual business or occupation during the case. The same section lets the court limit spending and prohibit transferring or hiding property.

Run the business as you normally would. Unusual bonuses, new debt, large purchases or sudden changes in pay during the divorce draw attention and can be treated as attempts to move value out of the community. If a major decision cannot wait, such as a large contract or a new loan, document the business reason and consider telling the other side in advance.

Can my business partner be affected, and what if my company has other shareholders?

Your partners keep their own shares; only your interest is divided. They may still be asked for records or a deposition, and the company will be valued.

The company agreement, partnership agreement or shareholder agreement matters most here. Many include buy-sell terms or transfer restrictions that apply when an interest would pass to a spouse. Texas LLC law also generally gives someone who receives a membership interest by assignment the economic rights only, not a vote or management role, unless the members admit them.

Can my spouse get access to confidential company records?

Yes, to the extent the records bear on the value or character of your interest, but access can be controlled. A Texas court can enter a protective order limiting who may see the documents, such as only the lawyers and experts, and requiring them to be returned or destroyed after the case. Asking for that order early protects customers, employees and partners.

How do I protect my company from a divorce settlement?

Plan before a dispute starts, and document everything. A divorce attorney can often keep the company itself intact and in your hands, but the value of a community business is still part of the division.

• A prenuptial or postnuptial agreement stating the business and its income are separate.
• A partition agreement under Texas Family Code § 4.102 for a company already owned as community property.
• A buy-sell agreement among owners that controls transfers to a spouse.
• Separate business and personal accounts, and a reasonable salary.
• Formation and ownership records kept from day one, for each company you own.

With several companies, each is characterized and valued on its own, so these steps apply to each one. See how John helps business owners or contact him.