Divorce is not something that people like talking about, bearing in mind that they got married when love was at a high. Another disheartening thing is if both individuals hold shares in the company, where they have a business partnership. Things become tougher because you are losing the marriage and at the same time the business is on a weighing scale.
As a business partner, you may develop fear when your business partner gets a divorce. Family matters play a critical role in the business because of the decisions that were made at the onset of the business. The court cannot rule on any decision that will affect the third parties. In this case, the third party is the business partner who is the most interested party in the business.
If your partner gets a divorce, the spouse is allowed to enjoy half of the partner’s stake of the business.
However, the court defines what non-marital assets and debts are to be decided on as the couple parts ways.
Below is information describing what to do if your business partner is getting a divorce.
1. Business valuation
This should be the first and foremost thing to do as soon as you learn that your partner is getting a divorce. Asses all the assets and the liabilities of the business and ensure that the partner’s agreement clearly describes how the business can be shared in case it gets dissolved.
In this case, the only assumption is that the business partner might consider dissolving the business.
If a company is not well established, the calculations will be easy since it’s all about knowing the value of assets minus the liabilities.
If the company is well established, on the other hand, there is the need to hire an expert who will not only assist in valuation but will give legal advice in terms of how the proceeds of the company can be shared altogether.
2. Amend the partnership agreement
Research shows that divorce happens due to family misunderstandings.
As a business partner, you need to understand this and amend the partnership agreement once you enter into a contract with a married person. This will help to protect your shares should the court give the spouse’s partner part of the shares.
If the business is a limited company, ensure that the shareholder’s agreement has a precise method of valuation and shareholders need to agree on the next course of action should there be divorce in one party.
3. Understand how the business is involved in the divorce case
If your partner holds minority shares in the business, then he/she is entitled to an income that comes from the business, according to DivorceFiller. The income share will be determined by the court who will divide as per the spouse’s interest in the business in question.
4. Your involvement in the case
During the proceedings, you are expected to provide testimony. Follow the proceedings of the case to get clear information on how much your partner owns in the business.
Confirm that whatever valuation is made is correct in the records and partnership agreements. You will then not feel cheated should the court rule that your partner shares his or her shares with the spouse.
5. Ensure that you have a clear grasp of the business records
The complainants in a court of law may be expected to disclose the assets and liabilities. As this takes place, ensure that you are aware of whatever records that are being revealed. You have a right to withhold the records that belong to you. Without involvement, sensitive documents may be accessed, and you may end up suffering further out of ignorance.
By getting involved, the court can stand with you by restricting rights to access the documents that you feel are of more interest to you, which you hold confidentially. Without court protection, then it may be deemed as a contempt of court when the case is still in operation.
6. Consider having a contingency agreement
This is an emergency sort of agreement which covers the security of the business. For one, nobody anticipates a divorce. It can happen just like how a disease can strike, and none of the partners have control over the situation.
Ensure that this document is well-drafted and maintained in safe custody. This will save you during such happenings.
There should be a detailed statement in the agreement showing the rights of the spouses in the company. Both the spouses / business partners need to know about this, and the document should be signed by the parties. This will avert challenges of knowing what to do and how to share the company if it is dissolved.
7. Know about prenuptial agreements
When getting married, as you disclose the business partnership you have to your spouse, it’s essential to have a prenuptial agreement. As the partner in the business, ensure that the other partner is well aware of such agreements. This will protect you from your partner taking advantage of your business investments in the event of a divorce. The details of the prenuptial agreement include:
- How the shareholding will be determined and valued during divorce.
- Whether the spouse has the right to sell any shares if divorce happens without the business partner’s consent.
- Retirement benefits if selling the business. Understand who owns what and the level at which the retirement benefits can be shared among the business partners and their spouses.
- It also contains an agreement of its existence even before the marriage begins.
- An agreement of how shareholding will change if the business expands.
8. Learn how to mitigate the effects of business failure during divorce
One thing business partners need to understand is that even with the existence of a prenuptial agreement, the business may still suffer. Know how to mitigate the negative effects. Measures such as boosting the business by adding shares as you take it to the next level could be an option.
Since the goal of the business is to grow, look for measures to salvage the company and minimize as much as possible the possibility of closure.
Conclusion
Divorce is not a topic that people take seriously when starting business relationships. However, it is important to understand the legal implications it could have in the business in the event it takes place. Always have a proper and structured partnership agreement that covers both parties and put down in writing what the partners are entitled to get. Most businesses are failing today because the risks were not mitigated at the onset of the business.If your partner gets a divorce, the spouse is allowed to enjoy half of the partner’s stake of the business.
