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5 ways to safeguard your small business during a divorce

On Behalf of | Jan 12, 2024 | Civil Litigation

Divorce can be a challenging and stressful process, especially for small business owners.

In Texas, where community property laws apply, protecting your company during a high-asset divorce is important. Luckily, there are practical steps to safeguard your business interests.

1. Keep meticulous financial records

Maintaining clear and accurate financial records is the foundation of protecting your small business during a divorce. Create a comprehensive system that details income, expenses and assets. Regularly update these records and store them in a secure location.

2. Separate personal and business finances

Drawing a distinct line between personal and business finances is necessary. Open separate bank accounts for your business transactions, ensuring that no personal expenses mingle with company funds. This separation can help prove the legitimacy of your business assets.

3. Define business roles and contributions

Clearly outline the roles and contributions of each spouse within the business. Document their responsibilities and contributions to showcase the individual efforts invested. This can be important in determining the fair division of assets during divorce proceedings.

4. Seek professional valuation

Having a professional valuation of your small business is a must. Engage a qualified business appraiser to determine the fair market value of your company. This objective assessment can serve as a valuable reference point during divorce negotiations.

5. Plan for business continuity

Develop a contingency plan to ensure the smooth continuation of your business in the event of divorce. This may include appointing a trusted manager, outlining succession plans or exploring options for business restructuring.

In 2022, divorce cases accounted for 39% of family cases filed in Texas civil courts. While divorce is the best solution for many, owning a business can create complications. By taking proactive steps and maintaining transparency, you can protect your business interests and ease the complexities associated with marital dissolution.