Your business may be thriving, but if your business partner’s marriage fails, you could still end up in trouble.
You may barely know your business partner’s spouse — but he or she could actually have a stake in your company. If your business partner’s share of the company ends up being part of his or her marital assets, your business partner’s ex-spouse could end up holding more influence over your company’s future than you’d like.
How do you avoid the business headaches that can come with a partner’s divorce? Essentially, it comes down to good planning. You and your business partner both need to address the potential for a divorce in your future through a buyout agreement.
What is a buyout agreement?
Also called a “buy sell” clause or agreement, this is a contract between business partners. It controls what happens if one of those partners has a significant life event that could affect the viability of the business. A well-drafted buyout agreement can (and should) address numerous life events aside from divorce — including things like what happens if a partner becomes seriously ill, files personal bankruptcy, retires or dies.
In other words, they provide a measure of security about what will happen to your partner’s share of the business if his or her life abruptly changes. They also help you keep your business out of unfamiliar hands.
Will a buyout agreement solve all potential problems?Even with the buyout agreement in place, you may still run into some difficulties. For example, you may have trouble fixing a value on the business in order to determine what needs to be paid in order to buy your partner out. That often takes a significant amount of time — and sometimes legal wrangling between all the parties involved (including the soon-to-be-ex-spouse). the buyout are readily available but the cash isn’t. If your business is cash poor, you may need help drafting a flexible payment agreement between the business and the departing owner.
Any divorce that involves the owner of a business is bound to have some complications — but they can be mitigated with the right agreements and help.
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