How does a company prevent business interruption in operations and focus when one of the owners, partners or members is getting a personal divorce? How will the division of their ownership interest affect the company? These issues should be addressed in advance in the company’s operating agreement or shareholders agreement. The corporate documents should identify the process to help establish ownership valuation, and provide options to allow for major life events such as divorce.
Many entrepreneurs download forms, or copy contracts they find online in an effort to keep expenses down at startup. This often comes back to hurt the business when unexpected events such as a divorce or debilitating injury interrupts the life of one of it’s owners. The experienced business attorneys at the Watkins Firm can help you to work through these contingencies before they ever happen.
One strategy is the use of a buy-sell agreement. If your business has two or more owners you should absolutely have a buy-sell agreement. The buy-sell agreement establishes the precise conditions and process for the transfer of an ownership interest in your business in the event of a “triggering event.” This can include the divorce of an owner as well as serious injuries or loss of life in an unexpected accident or medical condition, disability, or other substantial life event.
This process can establish the valuation of an ownership interest in the business and provide important protections for all concerned. For example, a well crafted buy-sell agreement should prevent the transfer or sale of an ownership interest without approval of the other parties. It could convert ownership to a non-voting interest in the example of a spouse who has taken half of one of your partner’s ownership interests in your firm.
If you are just beginning your company, we will help you to work through issues such as divorce and business succession planning as you form your company. If you are an existing business, and you wish to prevent business interruption due to a partner’s divorce we invite you to contact us or call the Watkins Firm today for a free and substantive consultation at 858-535-1511.