In Texas, selling your business before filing for divorce might seem like a smart move to simplify the divorce process. However, such actions could lead to legal consequences.
For example, selling a business just before filing for divorce might raise suspicions of attempting to conceal assets. Courts scrutinize such transactions, especially if they happen without the other spouse’s knowledge or consent. Texas courts have the authority to set aside such sales or transactions if a court deems them fraudulent or views them as a way to deprive a spouse of their rightful share.
Property division in Texas divorces
Texas law follows the community property principle. It means assets acquired during marriage belong to both spouses equally. This includes businesses started or acquired during the marriage. Upon divorce, these assets are subject to division, typically equally between spouses unless they agree on another arrangement or the court deems it inequitable.
Impact on property division
About 3.1 million small businesses operate in Texas. The sale of a business before divorce filing could affect the overall property division process. Courts consider various factors when dividing assets, including each spouse’s contribution to the acquisition of marital property and their economic circumstances post-divorce. Selling a significant asset such as a business could alter these considerations. It could potentially influence the division in favor of the other spouse.
Suspicions of concealment
If a court suspects you of hiding assets, you may face penalties. They could include a larger share of assets going to your spouse. Selling a business offers concealment opportunities such as offshore transfers, fake debt obligations, deferred payments and insider deals. Clear, transparent documentation can help a lot but may not resolve the possible issues entirely.
Selling a business before filing for divorce in Texas can have significant legal implications. Transparency, cooperation and adherence to legal requirements are important for navigating the process and getting a fair outcome in property division.
