Protection of Business Interests in the Event of a Divorce

A previous post explored how prenuptial agreements can serve as a very effective asset protection tool in the event of a divorce. Today’s post will continue with the theme of asset protection by examining the potential steps that a husband or wife can take to protect their business interests in the event of a divorce.

(Please see “Divorce and Prenuptial Agreements” for more information.)

Partnership Agreements, Operating Agreements and Shareholder Agreements

Any partnership agreement, operating agreement or shareholder agreement should contain the necessary legal tools to protect the business from the potential ramifications of either divorce or marriage.

To illustrate, if any shareholders in a business are single, a shareholder agreement could contain language stating that any unmarried shareholder will execute a valid prenuptial agreement prior to any marriage, as well as secure a signed waiver from the soon-to-be spouse forfeiting any future claims to a business interest.

Another legal tool that can protect a business from the potential ramifications of either divorce or marriage is a right of first refusal clause.

A valid right of first refusal clause would give the other shareholders in the business the first chance to buy any shares that either party to a divorce is selling. This would enable the other shareholders to maintain control of their operations and prevent a hostile takeover.

Business Strategies

In the world of small businesses, it is not uncommon for an owner to pay himself/herself a rather meager salary and reinvest the majority of profits back into the business. However, this may not be the wisest strategy.

A former spouse could try to claim more money or even a percentage of the business in the aftermath of a divorce. How? He or she could claim that they gained no benefit from the money since it was invested entirely in the business, not the household.

In addition, the more a spouse is involved in the day-to-day operations of the business (i.e., they are employed there or contribute in other ways), the greater their potential stake in it. Accordingly, you may to consider limiting your spouse’s involvement in the business.

This post is for informational purposes only and is not to be construed as legal advice. Contact a legal professional to learn more about divorce or prenuptial agreements.

Stay tuned for more from our Ft. Worth family law blog …

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