A divorce can be especially damaging to a family business. Most business assets will be considered marital property unless certain legal actions are taken to prevent it. This may result in a business needing to be sold off. In community property states like Texas, a business is especially vulnerable. However, there are several legal steps a spouse can take to protect a family business.
One strategy a person may use to protect the business is to create a prenup that defines ownership of business assets. This works well so long as one person started the business before the marriage. It can be written into the prenup that all businesses assets and any increase in the value of the business remain the property of that person. Depending on the size and success of the business, the other spouse may still be entitled to compensation, but the prenup may prevent the business from being ripped apart or sold off.
It may also be possible to buy out the other spouse's interest in the business. If one spouse was the primary owner and did most of the business work, it would make sense for that spouse to buy out the other and retain full ownership. This can be tricky because one spouse often doesn't have enough capital or assets for the buy out. Instead, they can take out a loan or property settlement note and pay the amount over time.
There are some more complicated options, such as the use to trusts to protect certain assets at the end of a marriage. A family law attorney may be able to help a client determine the option that is in their best interest. Most options, such as trusts and prenups, are legal documents with certain strict requirements. It is important that these documents to completed fully and with the correct legal wording or they may not hold up to court scrutiny.