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Top 5 Divorce Tips for Business Owners

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Top Five Divorce Tips For Business Owner

1. Don’t Wait

Divorce is NOT fun. It can be a lengthy, emotional and expensive process. Many Texas residents find themselves dragging their feet despite the fact the marriage is clearly over. This may be to avoid hurting the children, to prolong a nasty property fight or any other number of reasons. While burying one’s head in the sand may seem like the path of least resistance, it can actually complicate the divorce process in the long run.

Texas is a community property state so all assets or debts that were acquired during the marriage are subject to a just and right division by the Texas divorce court. This means that any growth in the business, increased revenue and income, bonuses paid by the business to the owner or other financial windfalls are a community asset. If a business expands to multiple locations or has other types of growth, that can make an otherwise simple divorce proceeding more complicated.

Even if a Texas business owner is not ready to initiate a divorce proceeding, if there are marital troubles at hand it would be wise to consult with a licensed Texas family law attorney who can review the business structure and other marital assets and then provide legal counsel as to how to best protect those assets should a divorce be filed.

2. Keep Excellent Records

When property is contested during a divorce, the cornerstone to successful settlement negotiations or trial is having excellent records. Many Texas businesses are sole proprietorships or small companies that may not employ a fulltime accounting firm or keep diligent records.

There are several facets of accounting that will be relevant to a divorce proceeding.

  1. Value of the business – If a business or company is community property, the entity itself and its value will be subject to division during the divorce. There are several methods of determining a business’ value, but all require a proper accounting of the business. This is not limited to the amount of money in a business’ bank account. This includes outstanding invoices, revolving contracts, the value of company assets or equipment, monthly expenses and more. Even a contractor has tools or items of the trade that need to be valued. If a Texas business owner is purchasing items for the business, it can be helpful to keep track of all assets and business investments.
  2. Income – If child support is also an issue to be addressed during a divorce, then the business-owning spouse will need to be able to prove what their exact income is and will need proper documentation. As discussed below, this can be complicated if the business is paying for personal expenses for its owner (such as cell phones or meals) because those items can be considered “deemed income.”

If child support is going to be requested, the easiest way to determine income is if the business pays its owner weekly/bi-weekly/monthly paychecks. Then that spouse’s net monthly income can be easily determined for child support calculation purposes. If a business owner “pays” himself by bank account transfers or cash, it can quickly become convoluted and complicate the divorce process. If at all possible, a Texas business owner should use an accounting firm or cut himself regular checks marked as income to have solid records for income reporting purposes.

 3. Don’t Mix Personal and Business Expenses

Texas business owners often use their business accounts to pay for things such as cell phones, vehicles, meals, clothing and even rent/mortgage on their house if it is a home-based business. And in many cases, all of those are reasonable and necessary business expenses and it is perfectly acceptable for the business to bear the brunt of those expenses.

During a divorce however, using company funds to pay personal expenses can cause the financial picture to get murky. Using a business account as a personal piggy bank can complicate the child support calculation process, the business valuation numbers or spousal support to be awarded.

4. Get a Post-Marital Agreement if Possible

A pre-marital agreement or a post-marital agreement can help facilitate a quick resolution to any property disputes. If the parties did not execute a pre-marital agreement prior to the marriage, then a post-marital agreement can be a great option to designate how the parties will handle a community-property business asset in the event of a divorce.

A post-marital agreement can designate a business as one spouse’s separate property or the spouses can agree how to divide a specific asset. A post-marital agreement must be fully agreed to and executed to be valid and enforceable and not all spouses may be comfortable with the idea of planning for a divorce. If it is an option, it can save legal headaches down the road. A Texas business owner should consult with a licensed family law attorney to discuss the possibility of entering into such an agreement.

5. Hire Experienced Legal Counsel

 As outlined above, owning a business while going through a Texas divorce can add another layer of complexity to the divorce process. There can be several financial concerns, including several that may have federal tax implications, that need to be addressed. Hiring an experienced Texas family law attorney, like the legal team at the Ramos Law Group, PLLC, can ensure all facets relating to a business are confidently handled. That will allow a Texas business owner to continue to devote the majority of their time and attention to their family and their business while their legal team can handle the rest.

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