Texas is a community property state, which means that assets acquired during the marriage are generally presumed to belong to both spouses equally. Under the Texas Family Code (TFC), if your business was created during the marriage, it is likely classified as community property and subject to division.
If the business was established before the marriage, it may qualify as your separate property, meaning it does not automatically have to be divided.
How Can I Protect My Business?
One way to protect a business in a marriage is through a prenuptial agreement. If you own a business before getting married, a prenuptial agreement can clearly establish that the business remains your separate property in the event of a divorce. This is often the simplest and most reliable form of protection.
If you’re already married and don’t have a prenuptial agreement, a partition agreement can perform the same function. Texas law allows spouses to enter into written partition or exchange agreements that convert community property into separate property. If you are married and planning to start a business, executing a partition agreement can help ensure the business remains yours alone.
Not having a protective agreement in place does not necessarily mean you will lose your business. Dividing a business in a divorce is a highly facts specific issue. As such, there are no “one size fits all” solutions. Talking with an experienced family law lawyer can help you navigate this complex question and determine what options exist for you.
Personal good will is often a factor in the characterization of the business. Personal goodwill is the value attributable to an individual owner’s personal reputation, skill, experience, or relationships with customers or clients. Unlike value that belongs to the business itself, personal goodwill generally depends on the continued presence of that particular individual.
Texas courts distinguish personal goodwill from goodwill that exists independently of the individual owner. Personal goodwill is not a divisible marital asset. As a result, when a business depends heavily on the personal reputation, skills, or relationships of one spouse, a business valuation may need to separate that personal goodwill from the value attributable to the business
itself. This distinction can have a significant effect on the value of the business considered in dividing the marital estate.
When analyzing a business in a divorce context your attorney will analyze who owns the business (is it community or separate property) and whether one marital estate (the community estate, your separate estate or your spouse’s separate estate) owes another reimbursement.
