Business and love are hard enough without having them linked, but what do you do when divorce happens and your spouse owns part of your company? This personal issue can invade your career and end up having an even larger impact (as if divorce itself wasn’t bad enough). Divorce is not something people typically plan for when making vows and also overlook when starting a joint company. However, the reality of modern marriage and business means that there is a known risk, about 50/50, that it will occur.
As with any divorce regardless of the presence of a business, the more amicable it is, the better the results will be. If it’s an ugly divorce, you may find yourself in a bitter fight, especially if you built your company with your spouse without setting up a prenup or an operational agreement. The next best thing you could do for your company if you do not have a prenup or agreement is to hope for a quick divorce. This doesn’t come without its downside as many people make poor decisions in a hurry in order to avoid legal fees.
At the end of the day, if your spouse owns any part of your business, you will have to either buy out his or her shares or liquidate the entire company and then pay them a portion. This is why it may be best to sit down with your spouse and a lawyer proactively, as unromantic as it sounds, to spell out the details of your business partnership.
There are a few permissions you and your spouse should give each other in order to untangle professional, financial, and personal issues. Give one party, most likely the majority shareholder, signature authority, which allows that person to sign on behalf of the company (leases, contracts, financing, etc.) without ever being held hostage by the partner’s signature leverage. The party without the signature authority should get a personal guarantee. This means that the minority stakeholder is not liable for the company’s debts.
As difficult as it may be, you and your partner should also clearly define what an end to the marriage looks like. This will instruct you on how to valuate your business, to give a concrete date. Otherwise, a partner may run out the clock and destroy the company in anticipation of divorce.
Many of these divorce tips are for the safety and protection of the company as its own entity. Sometimes couples fight over a company, but most of the time they simply use it as ammunition, as a tool to hurt the other. The best thing to do is to contact a corporate lawyer now, preferably with experience in litigation, to protect your business and your relationship, and to get the best professional advice.
Posted By Svetlana Binshtok