7 Things to do if Your Business Partner is getting a Divorce
When people join together to start a business, the issue of divorce and business is rarely mentioned until it happens. At least 40% of marriages end up in divorce within the first 15 years of living together, and with this in mind, there are specific issues that need to be put in mind and in writing when there is a business partnership involved.
The reason behind this is because married business partners may have shares in the business which you are not aware of and may impact you heavily; this would bring loss into the business to the favor of partner’s spouse who has filed the divorce.
In this case, it’s vital to ensure that the following things are in place if your business partner is getting a divorce.
1. Protect your interests
One of the most critical factors is to protect your interest and to have a partnership agreement detailing what is expected of you and your partner. For instance, the business partners spouse may request for some business documents, which to some extent, you may feel they are compromising the confidentiality of the business which has sensitive information about yourself. A partnership agreement, in this case, will act as a cover through the lawyer to restrict the submission of such documents which will end up protecting your interest.
The court, in this case, has a right to protect you in holding some of the sensitive business records if the partnership was in place and is detailed to what extent the documents can be disclosed.
2. Be part of the case
In many cases, a person may ask himself; ” Why should I get involved in a case where my business partner is getting a divorce?”
To determine the rights of litigants, a court may demand your presence, or you can voluntarily join as a witness in the case.
In a case where you will be required to produce some documents for business valuation, then one is in a position to understand where the judges are drawing their points from to demand such information.
You can find more information about business valuation by following the link.
Otherwise staying away from such a case may end up with surprises which if there were full attendance, some of the decisions would not have been passed.
3. Business Valuation
Complete Case claims that ensuring that the business is valued as soon as you learn about your business partners intentions to divorce is critical. Ensure that you involve professional valuers’ who will assist in the whole process based on the shareholder’s agreement.
There is also a need to evaluate the extent to which the business has grown and ensured that the values’ do not have any interest in the business which might compromise the intended valuation.
Getting an independent professional is also wise since he will offer legal counsel based on the facts on the ground rather than on how much they know you or the other business partner.
4. Prenuptial Agreement
According to Nolo.com, a prenuptial arrangement refers to an agreement that was made by the partners before getting married if the business was in existence.
It is a detailed document that includes the rights and obligations of the spouses when it comes to their inclusion in the business.
It’s of importance to ensure that such a document is available so that once you learn that your business partner is ending their marriage;
There are those arrangements where the spouse has minimal or no shareholding capacity, and in such a case, you would be assured that the business will not be affected by the marital affairs of the other party.
In any case, a divorce is an expected event which is unforeseeable in the near future, and just as the way insurance provides for unforeseen circumstances, a prenuptial agreement should also be put in place as a form of insurance and help in salvaging the business should the unexpected take place.
Below are the components of a prenuptial agreement that should be documented when it was drafted.
- All information that existed relating to the business before the couples got married.
- The percentage to which the spouses are expected to have.
- The level to which a spouse has rights to invest in the business shares.
- How much is the spouse entitled to get in case of dissolution of the business?
- Any retirement benefits that the spouse is entitled to get in case the partner retires or withdraws from the business.
5. Deny the spouse of your Business partner from becoming a business partner
The spouse may be interested in the business, and this could be one of the reasons that he would have the intentions to divorce to take over the business from his/her spouse.
As a business owner, in this case, you have the right to refuse such an arrangement to take place. For one, there will be no peace in that business since the aim of the new entrant is to mess up the business, or rather they may not even know the operations of the same, but want to make sure it falls.
The only solution to this is to keep attending the court attendance sessions, and in the event, you get to know if the partners’ intentions are to become a partner, you can then stand firm and stop any business transfers that will be deemed necessary to add the new person into the business.
6. Have a buy-sell agreement
The importance of this provision is to ensure that from the word go; the spouse is blocked from carrying out any activities in the business. In most cases, a buy and sell agreement should involve the employees of the business and other external shareholders who could manage the business. This is in a bid to separate family and business operations from taking place.
Mostly, the buy-sell arrangements do not have provisions for divorce, but it covers you as a business partner and ensures that the clause of families in the business is eliminated.
Whereas such an arrangement is in existence, ensure that you do not mix business assets with family assets. This can provide a ground to the spouse who is divorcing your business partner have leeway over the involvement of the business.
7. Put in place a second option in the case of business failure
At times, the business partner may give up in the case and decide to sell off his shares even as he proceeds with the divorce while he is not in the business. This could be a very tough moment for you to be left to manage the business which is already on shaky ground. As such, it is vital to look for ways to mitigate such effects and ensure that the business does not go down to the drains. As discussed earlier, we said that one should ensure that the spouse of the divorcing partner should not become a business partner.
If your business partner resigns, then you have the full authority to control the business, and there are ways to ensure that the company stands.
These include; adding more shares, inviting business partners to add the shareholding of the business and give it more glory.
When all these factors are put in place, the business will continue to grow, but this will solely depend on the effort that you put into salvaging it.
Business relationships and especially partnerships should be taken up with all measures in place.
Whatever is said and discussed the need to be put in writing as they have future implications of the business. The main aim of a business relationship is to make profits and if one of the business partners face challenges such as marriages breaks up, performing in the business becomes tough, and the only savior of such a person is to have put down in writing all the agreements pertaining the business. This includes the extent to which the family is involved in the business to protect against the effects of divorce and family disagreements.