Breaking Up Really Is Hard To Do: Protect Your Business From Divorce With Buy-Sell Agreements & Antenuptial Agreements

March 6, 2012

For anyone who owns a business, the topic of what happens to their business upon divorce (especially if it is someone else’s divorce) is crucial.  Here are some tips and suggestions to help you plan for possibility of divorce, so that you can get back to doing business and save some money (and your sanity) in the event a divorce impacts your business.

You need to safeguard against not only your divorce, but those of your co-owners, investors, as well as your adult children.

Antenuptial Agreement—If you own a business with your spouse and there are no outside investors or owners, you should give due consideration to executing an antenuptial agreement (otherwise known as a prenuptial agreement) before marriage or a postnuptial agreement if you are already married.

Buy-Sell Agreement—If you own a business or are an investor in a business which includes multiple persons, you should consider executing a buy-sell agreement.  These buy-sell agreements go by different names depending upon how your business is organized (corporation, limited liability company, partnership, etc.), but the general principles are the same.  The goal of these documents is to provide some certainty to an otherwise uncertain outcome.  They can be used to determine what happens to a business when a person dies, becomes disabled, retires, wants to sell his or her interest in the business, or when someone gets a divorce.

In Minnesota, divorce laws provide for an “equitable distribution” of marital assets.  Equitable does not mean equal, even though most people think it does.  This means that absent an agreement to the contrary, a judge decides how to divide marital assets.  This can cause absolute havoc on a business.  Even if a judge does not award the business interest to a non-participating spouse, at a minimum, the business can be pulled into court and have its business records and practices opened up to the other spouse and potentially the public–appropriately tailored confidentiality agreements and protective orders are of vital importance to protect intellectual property, trade secrets and the like.

These documents are certainly not easy to talk about – especially with a spouse or soon-to-be-spouse, but they are essential to proper business planning.  Your co-owners, on the other hand, should appreciate discussing these matters, since the protections included in these documents benefit them too.

This information is general in nature and should not be construed as tax or legal advice.