How Texas Community Property Law Affects Your Business Interests
One of the most challenging tasks in a divorce proceeding is the division of marital debts and assets. Parties may have an emotional attachment to certain assets or dispute the value of property. One spouse may have his or her own business. How are individual business assets and interests treated in a Texas divorce? Can you lose some portion of your business as part of a property settlement?
Texas Community Property Law
Texas is one of nine states that uses the community property approach to distributing a marital estate. Under Texas community property law, all property acquired during marriage is considered community property owned equally by both parties. The limited exceptions where property held or used during marriage are considered separate include:
- property owned before and brought into the marriage;
- property received as a personal gift to only one spouse;
- property inherited by only one party; and
- compensation received for personal injuries, other than an award for lost wages or income.
The characterization of property as community property is not affected by which spouse bought it, whether the funds came from a separate bank account in one spouse’s name, or whether one spouse owns more separate property than the other. Under Texas law, all property used or acquired during marriage is presumed to be community property. A spouse wishing to argue otherwise must prove that one of the exceptions applies.
Even though Texas follows the principle of community property, Texas law still mandates that judges oversee the allocation of debts and assets to ensure that distribution is “just and right.” The court may consider a wide range of factors to determine whether the division of the marital estate is fair, including:
- whether one of the parties caused the dissolution of the marriage;
- the health of the parties;
- the earning power and/or employability of both spouses; and
- which party has custody of minor children.
The Impact of Texas Community Property Law on the Division of Business Assets in a Divorce
When addressing the treatment of business assets in a Texas divorce proceeding, courts first look at when the business began operations. If the business was created prior to the marriage, there’s a presumption that it is separate property, owned by the party who started it. However, if the other party can show that there were significant investments of capital, labor, or other resources during the marriage, the court may determine that some portion of the business is community property. Furthermore, if the business grew substantially during the marriage, that growth may be considered community property.
If the business is determined to be community property, the parties will need to have the business appraised. What is the fair market value of the business? How much of the value of the business is in property, such as inventory or business equipment, and how much is tied to the goodwill created by the spouse who ran the business? Is it possible to divide the business between the two parties? If not, how will the spouse who does not receive business assets be compensated, such that the settlement is “just and right.”
Contact the Divorce and Family Law Attorneys at Bailey & Galyen
At the law office of Bailey & Galyen, we offer a free initial consultation to every client. For an appointment with an experienced Texas divorce and family law attorney, contact us by e-mail or call our offices at 844-402-2992. We will take your call 24 hours a day, seven days a week.