The adage “everything’s bigger in Texas” holds true in a lot of ways. From land size to state pride, there are many good things about this frame of mind. Unfortunately, there are also some negatives. One of the biggest: the impact of the state’s law on a higher earner’s assets during divorce.
Texas is a community property state. This essentially means that in the event of a divorce, the courts apply a 50/50 split to the marital estate. This can be problematic when one party to the divorce has a high earning position — especially if that position includes business ownership.
Can business owners retain ownership after a divorce?
You are correct to have concerns that divorce could impact business ownership status. Depending on the structure of your business interests, they could be at risk to division during the divorce proceeding. There are steps you can take to help mitigate the risk. One is to offer a lump sum payment or another asset of similar value in exchange for full retention of these interests. This requires careful business valuations to help better ensure such a trade is equal.
Another option involves the use of alimony.
How can alimony help to protect business interests during divorce?
First, it is important to make a distinction. When it comes to the law, the words we use matters. Alimony in Texas could refer to spousal “maintenance” or “support.” In Texas, the courts may grant maintenance when there is a financial necessity. This form of financial support is intended to help the lower income spouse get on their feet after the couple finalizes the divorce.
Spousal support is different. It is not court ordered but agreed upon by the parties to the divorce. Parties can use this as a tool to compensate the non-owning party in place of the lump sum payment technique noted above. Instead of the lump sum or similar value asset, the divorcing couple can agree to regular payments that would be of equal value spread out over a period of time.
Using these legal tools to help offer a fair settlement can mitigate the impact of the divorce on the business and preserve the owner’s interests. The specifics regarding use of this legal tool will depend on the individual circumstances of the divorce and the negotiations between the parties involved.