Owning a business can impact every area of a person’s life. The impact is uniquely felt within a marriage. Married business owners must consider the ways in which their marriage may impact their business and vice versa. Failure to think about how these two significant institutions interact can have unforeseen consequences—everything from addressing time management to distribution of liability may come into play. Here are a few things to consider if you are a business owner who is married or plans on getting married.
1. Is your spouse involved in your business? There are a broad range of roles that a spouse can have in a business, from having nothing to do with the company, to serving as an employee, to being the co-owner of the business. This determination can impact:
● the dynamics of your relationship,
● how you plan for taxes,
● the structure and liability of the entity, and
● the classification of your property.
Your spouse’s role in your business, particularly if it is a decision-making role, has a far-reaching
impact and should be carefully considered before making any arrangements.
2. Where do you and your spouse live? State laws affect how your property rights are handled—especially business rights. States vary in the way they treat property acquired during the marriage. The treatment of property is based on whether the state in question is a community property state or a separate property state. In a community property state, the court deems growth of a business that occurs during a marriage to be marital property, in which each spouse has a 50 percent interest. In separate property states, the increase in value of a business during a marriage is allocated based on the actual work done or contribution made by each spouse. Depending on the age and size of the company, this distinction may represent a million-dollar difference.
State law may also impact how rights are passed to spouses of entrepreneurs if they were to die, become disabled, or divorce. Some states, like Texas, statutorily protect business owners from unintentionally putting their spouse in a management or decision-making role by clearly articulating that only a financial interest can be acquired through death, disability, or divorce. 1 Leadership and decision-making authority do not automatically pass. However, some states’ laws allow organizations and businesses to contractually create these protections via the operating agreement in limited liability companies or the bylaws in corporations. Business owners may also include these provisions in a buy-sell agreement. It is prudent to examine how your state’s law deals with these situations.
1 Tex. Bus. Org. Code § 101.106 (2011).
3. What is the current health of your marriage? This question is critical because it can impact how you plan. If your marriage is on the rocks, you may want to strategically implement legal protections for your business. As described above, circumstances like death, disability, and divorce, if not handled properly, can open up opportunities for a disgruntled ex-spouse to fight for the right to manage the business or sell it and obtain a share of the property.
We Can Help
If you are married—or intend to be married—and run a business, there are significant legal issues you should consider. We have a team of skilled professionals who can help develop a solid course of action for you and your business. Call our office to schedule a consultation with a team member today.