If you’re a business owner, investor, or career professional getting married in Texas, you’ve probably heard the following question: How can you protect a business you owned before marriage?
Texas treats a business owned prior to marriage as separate property. However, a separate property title does not guarantee absolute protection in divorce court. Without proper precautions, your business could still be dragged through litigation over reimbursement claims, business valuation, and claims to increased value.
Texas Family Code
Although Texas Family Code § 3.001 provides that property owned before marriage is separate property of the marriage, Texas divorce laws also allow the community estate to seek reimbursement for the time, effort, and funds spent in benefit of that separate property business. Reimbursement claims are created under Texas Family Code § 3.402 and are common among business owners going through contested divorces.
One source claims that 70% of business owners going through a divorce say they are unable to concentrate on their work as much as they used to, and 57% believe their company has suffered financially. Three out of five business owners experienced poorer motivation and mental health at work, and 35 percent were compelled to rely on outside help, such as friends and family, to keep their company operating.
Avoid Commingling Finances
Do not commingle personal finances with business finances. Use separate bank accounts and credit cards. Commingling accounts makes it harder to prove who owns what and invites unnecessary scrutiny during a divorce. Business expenses paid with community income, along with the lack of owner compensation and profit reinvestment, can weaken claims for separate property protection.
Keep Good Records
Texas courts consider when the business was acquired, but they also closely examine how the business was maintained during the marriage. Questions about compensation, growth, and financial practices are litigated every day in the Travis County Civil and Family Courts Facility located at 1700 Guadalupe Street. Austin, TX 78701. The judge will review your bank statements, spending habits, and financial choices made during the marriage.
Pay Yourself a Reasonable Salary
When the owner of a separate business works for that business during marriage, it’s important to pay yourself a reasonable salary. Allowing the business to go unpaid, or underpaid, can leave a company owner vulnerable to the community estate claiming reimbursement for work performed. Paying yourself a reasonable salary allows the company to show that the community was paid for its efforts.
Hire a Business Lawyer
Many divorcing business owners wait too long to protect themselves from these risks. Business owners who contact a business lawyer before divorce is on the horizon can arrange for compensation, define ownership interests, and put protective measures in place well in advance of the marital breakup. By the time your divorce case is filed, your options may be limited.
At the Law Office of Ben Carrasco, PLLC, we help Austin-area clients protect their business interests during complex divorces. Ben has been Board Certified in Family Law since 2005. He routinely handles property characterization and reimbursement claims in Travis County family courts.
If you are going through a divorce and need to protect your business, the Law Office of Ben Carrasco, PLLC can help you do so. Contact us today for more information.
