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How your divorce may affect your business partners

On Behalf of | Jun 15, 2022 | Complex Divorce & Property Division |

Divorce is stressful enough when dealing with your personal assets and your children. But when a business is involved, things can become exponentially more complicated. This is because you not only have to think about how your share of the business is going to be affected, but you also must consider how your divorce is going to affect your business partners.

How will your divorce affect your business partners?

The answer to this question really depends on the circumstances of your case. However, your first step is to determine if your ownership interest in the business is community property or separate property. If you created the business or became a partner before your marriage, then you may have been able to keep it separate from the marital estate, which will greatly diminish the impact that your divorce has on your partners.

However, it’s much more likely that the interest in the business has been looped into the marital estate in one way or another. In these situations, your spouse will be entitled to 50% of the business interest value. Although this can be significant from a financial standpoint, you should rest assured that such an outcome does not automatically give your spouse an ownership interest in the business.

What you and your partners may be giving up

Although you may not necessarily be giving up an ownership interest in your business, your former spouse’s interest in the business’s value means that you’ll be giving up a large sum of your income, and your partners may even have to fork over some of their income depending on the profit-sharing arrangement in your business. The true impact here, though, will depend on several factors, including the financial contributions that your spouse made to the business and how much the business grew over the course of your marriage.

That said, things can get much more complicated if stocks are involved. For example, if you end up settling your divorce by transferring stock to your spouse, then you could end up with little or no ownership interest in the business, while your spouse suddenly acquires a significant interest. Here, you and your business partners could end up having to make decisions that include input from your former spouse. That’s why you need to consult with your attorney before settling this aspect of your divorce.

Other impacts that your business associates may see

These aren’t the only ways that your partners might be affected by your divorce, though. Each of the following are very real possibilities:

  • Your business associates must spend time gathering documents for the business valuation process
  • Some partners may have to be interviewed or testify in order to determine the business’s value and expected growth
  • Your partners may distance themselves from you so that the emotional positioning of your divorce doesn’t affect your business decisions
  • Partners may have to decide how to liquidate assets so that you can pay your spouse what is owed as his or her interest in the business’s value

What can you do to protect your business and your partners?

As scary as all of this may sound, there are things that you can do to protect your business in the event of a partner’s divorce. The best way to do this is to specify how the business will be handled in the event of divorce, including creating a buy-sell agreement that limits a spouse’s ability to acquire an ownership interest in the business and restrict his or her voting rights.

You should also consider keeping your business and personal accounts separate, if possible and done early enough. Prenuptial and postnuptial agreements, as well as confidentiality agreements, can also be a great way to ensure that you’re protecting your business and your business partners as fully as possible.

Do you need help navigating your case?

We know that it’s stressful to navigate a divorce under any circumstances, but things can be even more overwhelming, frustrating, and even embarrassing when your business is at stake. However, don’t let your fear of the situation drive you to make decisions that aren’t in your best interests. Instead, consider working closely with an attorney who is experienced in this area of the law and who can help you fight for the outcome that you, your business, and your partners deserve.