Monthly Archives: August 2012

Protecting Small Businesses in a Texas Divorce

One of the more complicated property issues in any Texas divorce is how to value and account for a small business owned by one or both spouses.  Unfortunately, many business owners don’t consider the impact of a divorce on that business until it is too late.

The most common and most effective means of protecting a small business in a Texas divorce is to enter into prenuptial agreements and postnuptial agreements in order to clarify the rights of the spouses in regards to the business.  With a prenuptial agreement, you can make clear that the business is to remain the separate property of the spouse who owns it.  More importantly, however, the business owner spouse can also seek to eliminate the right of either spouse to claim a right of reimbursement.

As I’ve discussed elsewhere on this blog, reimbursement is a claim made in Texas divorces which allows one marital estate (such as the community estate) to claim from another marital estate (for example, the separate estate of the business owning spouse) some form of reimbursement for increased value in the separate property business due to investment in the business with community funds or, more commonly, due to some other risk or detriment the community estate suffered in order to benefit the business owner’s separate estate.  The commonly occurs where a business owner obtains a loan on behalf of the business which includes a personal guarantee.  Most personal guarantees are written in such a way where community assets are risked in the event the business cannot meet its loan obligations.  While there may be no actual loss by the community estate, it may give rise to a reimbursement claim if the value of that risk can be ascertained.

In addition, in many small businesses, all taxes owed due to the profit from the business passes through to the owners.  The owners then pay personal income tax on the income they receive from the business in lieu of the business being taxed on the profits.  It is possible, in some circumstances, for the community estate to claim a right of reimbursement for the taxes paid on that income which would have been attributable to the small business otherwise.

In all circumstances, a properly written premarital agreement could protect against such claims.

A postnuptial agreement can also assist with changing the rules regarding income from the separate property business.  Many business owners do not realize that income from their separate property is generally defined to be community property.  A properly written postnuptial agreement can change that default rule to allow all income from the separate property business to be defined as the separate property of the spouse who owns the business.

Prenuptial agreements and postnuptial agreements are but just a few ways in which small businesses may be protected in a Texas divorce.  If you would like more information on how you can protect your business, contact our Houston divorce attorney, Bobby L. Warren at 713-579-9702.

Creative Use of Texas Temporary Orders

In my experience, temporary orders are one of the more underutilized tools available to parties going through a divorce in Texas or perhaps struggling with a child custody dispute in Texas.

In essence, temporary orders are exactly what they sound like – orders made by a Texas court on a temporary basis in order to provide some stability and predictability while a case is still pending.  When I say that such orders are “underutilized”, I don’t necessarily mean that parties don’t seek them when they should.  Instead, I mean that people don’t fully appreciate all of the options available in temporary orders.  While there are the obvious provisions concerning conservatorship, access and possession, as well as child support, there are other provisions available for use in temporary orders.

For example, temporary orders can often be used in order to cause a divorce or child custody matter to move along more quickly than it would without such orders.  In Harris County, Texas, depending on the family court you’re assigned to, it often takes several months after your filing date to receive a trial date. That trial date will likely be scheduled anywhere from 3-6 months out.  As any Houston divorce attorney will tell you, that trial date will likely be reset for another 90 to 120 days unless the parties have reached a settlement.  “Why?” you may ask.  Due to the substantial volume of cases in Harris County family courts, divorce and child custody disputes generally become backlogged, with the older cases taken up for trial before the newer ones.  The courts hope that by setting a trial date sooner, the parties will be encouraged to settle sooner.  If they do not, the court simply resets the trial date once its two week trial docket is full of the older cases.

How, then, can you as a litigant in this process, move the case along more quickly?  By proposing and entering into temporary orders with the other party, you can agree to be ordered to mediation well before the trial date.  Obviously, you will want to collect information you need in order to evaluate the marital property, as well as identify and value community assets.  Temporary orders can assist you with that task as well by establishing temporary orders which require the parties to exchange a sworn inventory and appraisement within a specified period of time (60 days is customary).  By requiring an early exchange of inventories, coupled with mediation shortly thereafter, you substantially increase the chances of settling a divorce case within a few months instead of waiting nearly a year to be called to trial.

In addition to inventories, parties can agree to exchange other documentation as part of temporary orders.  One very common set of documents ordered produced as part of temporary orders are income tax returns and paycheck stubs.  These are essential to establishing the amount of child support to be paid by the non-possessory conservator.

Finally, temporary orders can also be used to order the sale of certain assets before a divorce is final.  Most commonly, this means the sale of the marital residence.  Too often we purchase homes assuming the best case scenario – the continuation of a happy, healthy marriage.  When this plan doesn’t go as intended, my clients often find themselves with a home they cannot pay for themselves.  Selling the home is a frequent solution to this problem.  I have often drafted temporary orders which provide for the orderly and fair sale of the marital residence, with the proceeds divided up between the parties in a fair and equitable manner.

If you’re wondering whether seeking temporary orders are appropriate for your particular case, give our Houston divorce attorney, Bobby L. Warren, a call at 713-579-9702.