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Can I Sell My Business Before Divorce?
The short answer is that there is nothing legally stopping you from selling your business or any other asset before the Petition for Divorce is filed. However, there can be consequences to this course of action depending on the facts.
If the asset is community property, your spouse will have an ownership interest in the asset. Selling the business without your spouse’s participation and consent prior to filing a Petition for Divorce could lead to claims of fraud on the community and complicate the property division.
Committing fraud on the community can be disastrous for your divorce proceedings and the final settlement you receive. A valid fraud on the community claim could persuade the Court to award your spouse a disproportionate share of the community estate. This could result in losing your marital home or a substantial portion of the marital assets.
This does not mean it is impossible to sell your business before a divorce. If you and your spouse are in agreement to sell the business, you may not have to wait on the divorce to complete the sale. However, the best course of action is to consult with a family law attorney before finalizing any sale of a business or other large asset before the divorce. There could be lasting implications on the final property division if not handled properly. Therefore, enlisting the help of a Fort Worth divorce lawyer familiar with family law and how business ownership impacts the divorce is critical.
Youngblood Law, PLLC: The Fort Worth Divorce Lawyer You Can Trust
The divorce attorneys at Youngblood Law, PLLC, are here to help you navigate the complexities of the divorce process as a business owner. Our team has a combined experience of over 35 years practicing family law in Texas. This experience means that we are well-versed in the potential issues that can arise when selling assets in the lead-up to a divorce.
Our skilled family lawyers can use this experience to provide the best possible advice to avoid pitfalls and complications that could negatively impact you in the divorce settlement. Similarly, our knowledge also allows us to help you protect your business and its assets throughout your divorce and ensure you are not subject to an unfair settlement or face losing more of your business to your ex than you should.
Contact the Youngblood Law, PLLC legal team today to book an initial consultation by calling 817-369-3970.
Texas Community Property Laws
Texas is a community property state. This means that all property acquired during the marriage (except for gifts and inheritance) is community property and subject to division between spouses during the divorce process.
In the vast majority of Texas divorces, the parties are able to come to an agreement on how marital assets are divided between the divorcing couple. The remaining divorce cases are decided at a final trial by the Court or, in very rare cases, a jury. Once an agreement is reached, either through negotiation, formal mediation, or a divorce trial in family law court, the final arrangements are formalized in the divorce decree.
Texas law requires a “just and right division” between the spouses of the community property. A just and right division is an equitable distribution between spouses. This equitable distribution does not require the Court to divide the assets evenly. There are many factors that the Court can use to determine what is just and right. If spouses can’t agree on property division, these are the factors that will guide the Court’s decision on the distribution of assets.
Can I Sell My Business During My Divorce?
If one spouse chooses to sell a business that could be considered community property, it will likely complicate the divorce. This type of transaction during the divorce requires you to negotiate on two fronts. Not only will you need to negotiate with the purchaser regarding the purchase price and what business assets are included in the purchase price, you will also have to negotiate with your spouse on those same points. You and your purchaser agree that the business has a value of X. Your spouse, however, believes that the business has a value of Y. All three of you must agree on the value of the business before the sale can go through. Having an experienced Fort Worth family lawyer to guide you through this process is crucial.
Other Factors Impacting Your Ability to Sell Your Business During a Texas Divorce
It is an extremely common practice in Texas divorces for the Petitioner to request a Temporary Restraining Order (TRO) with the Petition for Divorce. A Temporary Restraining Order enjoins the Respondent from doing things they would normally have a legal right to do, like buying and selling property among other things. The TRO becomes effective on the Respondent as soon as he or she is served with the Temporary Restraining Order. The TRO almost always becomes mutual temporary injunctions at the first hearing or by agreement of the parties. These injunctions are effective on both parties and will continue until a final order is entered or until changed by a new Court order. A Temporary Restraining Order and the subsequent temporary injunctions are an effective means of stabilizing the community estate by preventing either party from making significant financial transactions during the divorce.
If you sell your community property business without the consent of your spouse while temporary injunctions or Standing Orders are in place, you will be in violation of a Court order and subject to punitive action by the Court.
Many Texas Counties have implemented Standing Orders that cover the same issues that are available in the Temporary Restraining Order. An important difference between a Temporary Restraining Order and Standing Orders are that Standing Orders go into effect as soon as the Petition is filed and is effective immediately against both parties. This means that not only is your spouse prohibited from taking any significant financial transactions, but you are too.
If you have been served with a Temporary Restraining Order, there are mutual injunctions in place, or there are Standing Orders in place, it is vital that you do not attempt to sell your business or any other significant asset during the divorce without the advice of your divorce lawyer. It is sometimes possible to complete the sale of large assets like businesses or real estate during the divorce, but it requires agreement of the parties and for certain procedures to be followed to safeguard the proceeds. Selling a community property asset outside of these procedures is a violation of the Court’s order and could leave you exposed to punitive action by the Court.
What Is Fraud on the Community?
Either spouse can commit actual or constructive fraud on the community by undertaking various acts that affect marital property, the division of property, or the settlement the other spouse receives. A spouse may commits actual fraud if he or she intentionally acts in a dishonest manner that induces the other spouse to take action or otherwise rely on false information.
A spouse commits constructive fraud if he or she breaches his or her fiduciary duty to the other spouse or wastes community assets. Regarding constructive fraud, there is no requirement to prove that the accused spouse acted out of the intention to defraud, just that they committed the act of fraud. An example of wasting assets could include selling marital property without consent of the other spouse or for less than fair market value to avoid property division in the divorce.
Common examples of fraud on the community include accumulating marital debt just before a divorce, selling assets, hiding assets, and spending community funds on a new partner. If the Court determines that fraud on the community has occurred, the Court will reconstitute the community estate. This means that an evidentiary hearing is necessary to allow the court to determine what the total value of the community estate would have been if the actual or constructive fraud on the community had not occurred and the amount of reduction in value that the fraud caused. The court will then use this information in determining how the property should be awarded in the final decree.
Is My Business Considered Marital Property?
Fraud on the community only applies to community property assets. If your business is considered separate property because it was yours before the marriage or it was inherited, selling your business may not impact your divorce. However, it is often challenging to determine exactly whether your business is entirely your own separate property or if it is considered part of the marital estate. Additionally, there are other claims your spouse can make that could impact you, such as a reimbursement claim. Therefore, it is always important to have an experienced family law attorney help you navigate these nuances before selling a business, regardless of whether it is community property or separate property.
As a business owner, it may be frustrating to think that your spouse has any claim to your business, but many factors and situations may mean that this is a reality. For example, if marital funds have been invested into the company, if your spouse worked in the business and was not adequately compensated for that work, or if business finances and personal finances have been mixed together, your separate property company may be impacted by your divorce.
Similarly, if you and your spouse share ownership of your business, this will also be considered community property in most cases. In this situation, you and your spouse will need to reach an agreement on how to manage the business moving forward. Your agreement could include continuing to co-own the company and maintain a working relationship or one spouse buying out the other spouse’s share of the business.
If your business is considered community property and you intend to pursue a divorce, your company could be subject to division in the divorce. In this situation, you will need to establish a fair market value for your company through a business valuation and then negotiate the division of assets with your spouse. If you are intending to sell your business, you may be required to split the proceeds from the sale with your spouse.
How a Fort Worth Family Lawyer Can Help
Selling assets before a divorce can be a risky process. To ensure you are not committing fraud on the community, you must establish ownership rights and whether your business is considered community property. An experienced lawyer can review the specifics of your situation and help you understand if your company is separate property and whether you are able to sell it without risk before your divorce.
If your business is deemed community property, you may still be able to sell it before your divorce is final, but you will need to agree on this with your spouse. A Fort Worth divorce lawyer from our firm can help you negotiate and formalize this agreement to sell to ensure you do not face any accusations of fraud later in your divorce.
If your business is considered part of the marital estate and subject to division with your spouse in the divorce, a family law attorney can help negotiate a fair distribution of assets. Often, divorcing spouses will argue their level of ownership rights to a business to increase the assets or proceeds they receive in the divorce settlement. Representation from a skilled divorce attorney will protect you from unfair and aggressive negotiations and inaccurate claims to your business.
Contact the High-asset Divorce Attorney Fort Worth Couples Recommend!
If you want to sell your business, it is understandable that you may not want to wait until your divorce is complete to proceed with the sale. It may be possible to go ahead and sell before your divorce, but experienced legal advice is essential. Without reputable legal counsel, you run the risk of unintentionally committing fraud on the community and losing a significant amount of your assets in the divorce settlement as a consequence.
As a business owner, you have a lot to lose in a divorce. It is essential that your settlement accurately reflects the marital property and that you do not agree to an unfair settlement and division of property. As such, you need a skilled divorce lawyer with experience handling high-asset and business-related divorces to support your case.
Divorces are stressful for everyone, but the stakes and associated stress can be even higher for business owners. High-asset divorces are complex, and without an attorney, you risk falling foul of Texas divorce law. The implications of an unfair or improperly handled divorce settlement can be life-changing.
At Youngblood Law, PLLC, we work with financial experts and use skillful negotiation to secure fair outcomes in divorces involving businesses whenever possible. If an agreed resolution is not possible, we are skilled and experienced in contested divorces involving business valuations. We are very comfortable in the courtroom and will defend your best interests to preserve your interests in the business.
The Fort Worth divorce lawyer at Youngblood Law, PLLC are well equipped with a wealth of knowledge, experience, determination, and resources to secure a divorce settlement that is fair and supports your needs while protecting the interests of both you and your business.
Contact Youngblood Law, PLLC today at 817-369-3970 to book an initial consultation and discuss the best course of action for your business and divorce.