Property division: What happens when a business is in the mix?

Texas distinguishes separate property from community property within its property division laws. The distinction is important for the determination of how property will be distributed among parties within a divorce proceeding.

Community property is not the same as separate property. In Texas, community property that is held jointly is divided by the court and given to divorcing spouses (if there is no property division agreement). Yet, some property is hard to characterize. For example, if one spouse has ownership in a company, it could be difficult for a court to assign a property status to the business property. If  ownership in the company is considered separate property, both spouses may not be entitled to the business.

In such cases, it is common to incorporate corporate law into the property division analysis. For example, assets could be hidden in what appears to be separate business property, and this could hinder one’s right to a just portion of property. Then, a party could leave the relationship with business assets from the companies, which were supposed to be distributed equitably along with other asHowever, when a corporation is truly an “alter ego,” of an involved party, this may make the business community property.

If a company is actually an “alter ego” of a party to a divorce, assets of the company could be divided in the property division process. When the corporate veil of the company is “pierced,” the business is actually an alter ego of a party to a divorce. Essentially, the veil is pierced when a court determines that there is no difference between the company and a party to the divorce.

Furthermore, if a party’s use of the business greatly affected the couple’s community assets, then the corporate veil could be considered pierced. This might be in the case where the family’s income was completely funded by a personal business.

When the court analyzes property pursuant to the property division process, it is crucial to make certain that all assets are characterized correctly. Whether a business should be considered separate property or whether a company should be integrated into the community estate is an important legal issue, which could seriously affect the allocation of property.

If you are interested in knowing more about the characterization of your business, take the time to speak with a solid family law attorney in your area.

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Raggio & Raggio, PLLC is based in Dallas, Texas. We represent clients throughout North Texas, in the cities of Dallas, Plano, Frisco, McKinney, Allen, Richardson, Irving, Highland Park, University Park, Park Cities, Garland, Mesquite, Rockwall, Fort Worth and Denton, as well as Dallas County, Denton County, Tarrant County and Rockwall County.