What happens when business owners divorce? High-profile cases like the Bezos' or the Gates' should cause many people to consider how their business and marital assets are tied together. You need to have plans in place from the beginning. No one thinks their partnership will end. However, it's necessary to have a plan in place, just in case.
The Dallas Business Journal’s recent article entitled “Does your business need a prenup?” explains that there are three typical outcomes when married couples working as business partners decide to end their relationship:
Safeguards can be put in place on the first day of the relationship to protect your personal and business assets in the event of a divorce. A way to do this is through a prenuptial agreement, which states what will happen if a split happens. A pre-nup should:
In addition to a prenuptial agreement, any privately held company should have a shareholder agreement (or "operating agreement" for non-corporations). The shareholder agreement is one of the most important documents owners of a closely held business will ever sign.
It controls the transfer of ownership when certain events occur, like divorce and states the following:
Because there are some tax implications involved in a buyout, it's best to bring in experienced estate planning attorney for this process. In addition, life events like divorce or changes in a business partnership are an appropriate time to update your will, estate plans and any necessary insurance policies. Book a call with Vick Law, P.C. to create an estate plan that seamless protects you and your business.
Reference: Dallas Business Journal (Aug. 1, 2022) “Does your business need a prenup?”