April 17, 2023
Could a Business Partner’s Divorce Derail Your Company?
It is standard for individuals starting a business to focus on the reasons they expect to be successful. Likewise, companies that are in a growth mode focus on the opportunities they see and competitors who they must beat in the marketplace. It is equally important for business owners to consider those circumstances inside and outside their company that can derail that forward progress. From the death or serious illness of one of the owners to failing to plan for succession to the divorce of a partner, factors can change your business landscape overnight.
Wait, you might say — How could my partner’s divorce affect my business? The reality, particularly for businesses in Texas, is that divorce in business can happen at any time. Businesses not prepared for such a situation face significant consequences, up to and including the dissolution of the business. Unfortunately, highly experienced attorneys see this situation all too frequently.
Texas: A Community Property State
As one of nine community property states, Texas law provides for the equal division between spouses of assets acquired during the marriage. That includes any ownership of the company and partnership interests. Even ownership acquired before marriage can be clouded if there is an appreciation of the value of that ownership during the marriage.
Thus, a divorce by business partners could end up making your partner’s ex-spouse a co-owner. Additionally, anyone else with a spouse involved might end up being involved in the subsequent ownership. It is easy to contemplate the complications such a situation could create. That could include everything from interference in day-to-day operations to making financing or other business deals impossible.
Could Your Business Partner’s Divorce Derail the Company?
Whether your business operates as a C corporation, a partnership, or a limited liability company, and the business documents do not consider the situation, promptly responding to the news of a potential divorce is important. If you find yourself asking if there are steps to take if my business partner is divorcing, the good news is that there are several ways to approach the situation.
Taking these actions well before any event of divorce arises is an important element of making these actions enforceable. This also applies to ensuring all spouses are fully briefed on the existence of and the terms of the documents that will be put into effect if there is a divorce.
Although there are a number of issues related to the concept of prenuptial agreements, this is an aspect of ownership planning that should be carefully considered. This is especially the case where the valuation of a company is expected to be substantial. This is another area in which an experienced lawyer in McAllen, Texas, will provide important insights.
Mitigating the Possibilities
The good news is that divorce and business is a risk that is easily mitigated if handled properly and in a timely manner. It is important for any business owner to ensure the issue of divorce is adequately addressed in corporate or partnership documents before they or any partner considers dissolving their marriage.
To properly prepare for such an eventuality, a competent lawyer in McAllen, Texas, will explain the types of shareholders, partnership, or ownership documents that should be drafted and executed by the owners of the company and, in most cases, by the spouses.
These documents will be specialized to focus on the specific nature of the business and the terms that are applicable in the event of a divorce. These will normally include:
- Requiring the ex-spouse to sell any business interest they receive as part of a divorce agreement
- An agreed and definitive method for valuing the ownership interest as of the time of sale.
- A clear statement about the method of purchasing and the terms of the payout of the purchase.
Each of these issues will be influenced by the form of the business, the number of owners and their percentage ownership, and the size of the valuation. Even if you have not proactively planned for that eventuality, there are important actions to take if the problem does arise.
Legal Assistance From a Business Lawyer in McAllen, Texas
If you have a business partner dealing with divorce, it is crucial to seek legal help to know how to handle the situation and how it can affect your business. But having an alternative resolution from the start of your business for such a situation could make a huge difference.
Our staff of experienced attorneys in McAllen, Texas, will help you prepare for a long list of eventualities that could affect your company’s ongoing success. This includes steps to take prior to or if the issue of divorce becomes a reality among the owners of your business. Call us today to discuss how our team will provide you with important information on the issue of divorce and other critical business issues.