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Specialty tag(s): Divorce for Men, Divorce for Women, Business Valuation in Divorce, Divorce for Business Owners, Pre-Divorce Guidance, Divorce

How Could My Divorce Impact My Business Partnership or Stakeholders?

Kevin Davidson | April 3, 2024

Navigating the intricacies of divorce can be daunting, which is especially true when you own a business. But things can become even more complicated when you’re not the sole owner of your business. If you have shareholders or business partners, how will the divorce impact their interests in the company? The financial stability of multiple owners and the future of the business could be at stake if you are not prepared.

Possible Effects on Shareholders and Business Partners

The court strives for a fair and equal division of property during a divorce, which includes your business assets if they are not determined to be separate property. Unfortunately, this division process can be lengthy and complex, often causing ramifications for your business partners and stakeholders. The possible impacts of your divorce on your business include:

• The Intrusiveness of the Valuation Process: Understanding a company’s value is essential for an equitable division of assets. This value is determined using a valuation process that could potentially be intrusive, requiring access to company financial records and possibly interviews with key personnel.
• Liquidation Pressure: There’s a chance that one spouse might have to buy out the other’s interest to divide assets such as a business interest equitably during a divorce. However, if there are insufficient liquid assets available to do this, there might be pressure to sell business assets or even the entire company.
• Operational Disruptions: Due to the complicated and time-consuming nature of divorce proceedings, a divorcing business owner’s attention is often diverted away from day-to-day operations, which can impact a company’s performance.

How to Protect Your Business Partners’ Interests During a Divorce

If you are concerned about the impact of a potential divorce on your business partners or shareholders, there are several approaches you can use to protect your business and put their minds at ease.

• Prenuptial or Postnuptial Agreements: These agreements can specify how business assets will be treated in the event of a divorce. Identifying the business as separate property in these documents can protect your ownership interest and even the business itself into the future. In addition, a well-drafted premarital agreement or post-marital property agreement can significantly simplify the divorce process if and when you should end up separating from your spouse.
• Protections in Your Business Formation Documents: From the outset of forming a business, the founding documents can include agreements to help protect your business partners.
  1. Clarify what will happen if a partner divorces, becomes disabled, retires, or dies. Spell out how interests in the business can be transferred and how shares will be valued in the event of divorce. For instance, you may want to include a stipulation that one partner cannot transfer their interest in the business without agreement from the other partners.
  2. Include a buy-sell agreement to help keep the ex-spouse from becoming a partner in the business. This type of agreement can require the ex-spouse to sell their interest back to the business or give the other partners the right to buy them out before they sell to anyone else.
• Confidentiality Agreements: If you need to go through the business valuation process, make sure that all parties sign a confidentiality agreement to protect sensitive information about the business’s finances.
• Trusts: Transferring business interests to a trust can shield them from potential division during a divorce.
• Compensation In Lieu of Equity: You may be able to compensate your spouse with other assets instead of dividing business equity.

Contact Goranson Bain Ausley Today to Protect Your Business Interests

If you are worried about how your divorce could affect the interests of your business partners or shareholders, contact one of the knowledgeable and accomplished divorce attorneys at Goranson Bain Ausley. Our experienced legal counsel will provide you with the guidance and insight required to make well-informed decisions concerning your business assets and other marital property. Schedule your consultation online or by contacting our offices in Fort Worth, Granbury, Austin, Plano, or Dallas today.

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About the Author

Kevin Davidson is Board Certified in Family Law by the Texas Board of Legal Specialization and is a partner at Goranson Bain Ausley. With more than 15 years of experience in family law, he is skilled in handling all aspects of family law and divorce, including complex divorces involving significant assets, contested child custody disputes, and sensitive mental health concerns.

Known for his client-focused approach, Kevin quickly delves into the unique needs of each case, ensuring his clients receive immediate guidance through uncharted waters while also strategizing for long-term solutions. His primary objective is to guide clients toward resolutions that safeguard their long-term wellbeing and financial security. Since 2020, he has been recognized in The Best Lawyers in America© for Family Law.