Armstrong Law, P.C.

Your business partner’s divorce can affect your company

There are many risks associated with business partnerships in Massachusetts. One that catches many business partners by surprise is the risk of their partner’s divorce. These entrepreneurs may have taken every step to protect the company via prenuptial or postnuptial agreements, solid estate plans and even a succession plan. However, if their business partner failed to take similar steps, a divorce may cost them both a good chunk of the business.

Forbes notes that most states consider a business a marital asset. This means that during a divorce, that business may be subjected to division like any other asset. This may cause the divorcing partner to lose some of their stake in the business to the ex-spouse.

This can affect their voting rights in the company. If the partner chooses to stay, there may now be an uninvited partner in the business that makes business difficult or impossible. If the other partner dumps the stock, it might cause the value of the company’s stock to plummet. Another alternative is that the divorcing partner may liquidate their interests to pay the partner, but can the business pay all that money?

Because of this, points out that it is important that partners vet each other and their marriage and estate plans. While this may sound intrusive to some, considering what is at stake, anything less may bring regret.

This is not to say that business owners should decide on who their partners marry. It does mean that prenuptial agreements and estate plans should be a part of the agreement, even if it only pertains to the business interest and nothing else. Finally, partnership agreements should include a buy-and-sell clause that requires a partner’s spouse to sell their shares back to the company if they get divorced.

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Armstrong Law, P.C.
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