Juliann Karenko - The Karenko Law Firm PLLC

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DUE TO COVID-19, We Are Available by Telephone and Video Conferencing

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How will a divorce impact my business?

| Jul 9, 2021 | Divorce |

An estimated 50% of Americans get divorced. It can be a financially crippling life even if your spouse’s filing catches you by surprise or if it occurs at a certain stage in your life, such as when you’re nearing retirement.

While there are steps you can take to minimize the impact a divorce will have on your future, such as signing a prenuptial agreement before marrying, few spouses do. The impact divorce has on your business can be affected by this. It’s not the only step that you can take to protect your business if you eventually divorce.

Did you include your business in a prenup?

Spouses don’t often include their business in a prenup because they are not yet incorporated or don’t see it as profitable enough to put it in such an agreement. The complication is that it may leave a business divisible as a marital asset should a couple divorce.

Not protecting a business with a prenup exposes the spouse who runs it to not being able to walk away from their marriage with their company intact. Even including it in a prenup could expose the spouse who runs the business to their husband or wife stake a claim if they were to divorce. In this instance, the outcome is contingent upon what becomes of the profits the company generates.

A spouse who uses their businesses’ profits to pay for expenses alone is likely to be able to preserve the company as theirs. If they use any profits to cover joint expenses, their husband or wife may stake a claim to the company.

What happens if you didn’t have a prenup to protect your business?

Some incorporation documents include lock-out clauses in their bylaws. These often require you and your business associates to seek each others’ consent before transferring company voting rights or shares. You may find that your spouse can’t stake a claim to your business if your shareholder, buy-sell, limited liability company (LLC) or partnership agreement includes such a clause.

How can you best protect your Texas business?

It’s a mistake to conclude that you’ll have to give up your rights to your Kemah business simply because you’re divorcing. Property division negotiations may lead to a settlement that allows you to maintain full control over your company even without a prenup or lock-out clause.