How to Safeguard Your Business Against Divorce

Relevant For:

Business owners, particularly those in partnerships with spouses.

Key Points:

• Implement a Buy-Sell Agreement (BSA) to manage ownership transitions during divorce.
• Establish a Binding Financial Agreement (BFA) to delineate business assets from marital assets.
• Maintain clear financial records to distinguish business contributions from personal ones.
• Act now to prevent disputes and lengthy legal proceedings during a relationship breakdown.

Full Article:

A marriage breakdown can significantly impact the business. Proactively addressing potential issues can save considerable stress, time, and expense in the future.

Implement a Buy-Sell Agreement

A Buy-Sell Agreement (BSA) is essential for businesses with multiple stakeholders. It outlines what happens if specific events occur, such as the death, incapacity, or divorce of a partner. In divorce scenarios, a BSA can prevent ownership interests from passing to an ex-spouse by allowing the remaining partners to purchase the shares. This arrangement often includes vendor financing, enabling gradual payment for the shares. Additionally, a BSA provides a method for valuing the interest to be transferred, ensuring a fair and agreed-upon process.

Establish a Binding Financial Agreement (BFA)

For family businesses, a Binding Financial Agreement (BFA) can delineate asset distribution in case of a relationship breakdown. A BFA, which can be made before or after marriage, protects the business by excluding it from marital assets or capping the ex-partner’s claim. It is especially useful in multi-generational family businesses. Discussing a BFA may be emotional, but it offers clarity and protection. Both parties must obtain independent financial and legal advice to ensure the agreement’s fairness.

Maintain Robust Business Operations

Clear financial records are crucial. They help distinguish business assets from marital assets, showing what contributions each party has made. If a partner is involved in the business, document their contributions and ensure they receive a market wage. Keep business and personal expenses separate to avoid complications during asset division.

Act Now to Protect Your Business

Addressing these issues now is crucial. Waiting until a relationship breakdown occurs can lead to disputes and lengthy legal proceedings. Proactive planning ensures you retain control over your business assets, preventing judicial intervention in their division.