There comes a time when a business thrives well, the economy is at the peak, and the partnership seems to be heading in the right way. One day, your partner reports to work as usual but looks gloomy, no appetite to get to work, and you try to understand what the issue could be. To your surprise, he breaks the news that he is getting a divorce. It is human nature to empathize with the person bearing in mind what is about to take place.
However, remember there is a business in a level that needs to be taken care of for you to continue living in the degree that you have placed yourself into. Worry sets in and you get confused on the next steps to take to ensure that the business does not go down. Most likely the spouse of your partner will now interfere with the business because she/he would want the share that she should inherit from the company.
As per completecase.com, there are several things that you need to do if your business partner is getting a divorce in a bid to salvage your part or work towards ensuring that it is going to be well and we are going to elaborate a number of them as we guide on what to do should such a situation arise.
1. Be part of the Divorce case
The importance of involving yourself in the case is to provide a testimonial about the business. There are times that the court may ask for valuation documents of the company and being part of the business, you will need to understand the percentage at which the division will be done and the effect it will have on your shareholding.
2. Contingency Agreement
There are emergency solutions that you can provide in the partnership agreement which could help in salvaging the business. A contingency agreement should include the rights and obligations of the spouses before the onset of the business. When your business partner discloses that they are divorcing, such a document will be critical since it will give the full information of the shareholding of the spouse.
Who knows; the agreement may contain immaterial shareholding of the spouse such that it will not affect the business. But if such an agreement was non-existent, then the court can voluntarily give an order on the division of the company’s investments which would have a significant impact, and even end up closing the business.
It’s essential then to prepare such documents to protect the business in case of such an occurrence. Remember that divorce is unforeseen circumstance just the same way as an accident. It’s therefore essential to plan for such in eventualities ahead of time before it divorce comes knocking hard.
3. Value the Business
As soon as you learn about your spouse’s intention to divorce, engage professionals who are involved in business valuation. According to the shareholder’s agreement and the rate under which you share the profits, ensure that the business valuation will be actioned as per the partnership agreement.
If the business has grown over time, you need to make sure that you hire an independent value and financial analysts who will not compromise your agreement at any cost. The importance of hiring a professional and an independent valuer is because he is not interested in the family affairs but only in the business that he has been assigned.
Besides, he will offer legal advice if such information relating to divorce is concerned, and you as the business partner will be better positioned to know the next course actions once the court proceedings are up and running.
4. Take charge of the business records
In divorce cases, the litigants may be required to disclose the assets and liabilities, and mostly the business records may be huge. In case your partner comes to request for the documents, ensure you act as per the partnership agreement which defines the extent he or she is mandated to access the business records. In this case, you also need to be proactive in the court proceedings to understand the type of records that are being requested.
This is because there are sensitive records that you may feel that they are compromising your confidentiality. The court can, on the other hand, protect you from being intimidated to disclose those documents and that is the reason you need to follow each step of the court’s proceedings. They will also understand you and be ready to protect you in case such a need arises.
5. Consider the Marital Property
When the business was started, there is the part of the shareholding that the couples were involved in. At times people may think that the investments of the business will be divided into two. The court is fair enough to check into this and confirm the other spouse’s involvement in the business and give the share as per the holding. Therefore, as much as the spouse may be of the option that she would get a large share, this would be a big lie since the court will analyze as per the business valuation which you as the business partner ought to have done upon realization of the divorce information.
If the business was started before marriage, then the spouse will only be considered having been a wife or husband who supported the family when they got married. As such, they will be given a fair share of the business. Having this in mind, you should ensure that you have the full information regarding your shareholding so that as the division is being done, your part will be left intact. The court will also be ready to give you the protection you deserve in terms of your business shareholding.
6. Understand the Prenuptial agreement
A prenuptial agreement is an agreement made between couples before marriage regarding business owner once they start living together as a husband and wife. Upon knowing of your business partner’s intention to divorce, it is essential to understand such an agreement. This is in a bid to protect you against overvaluing on the side of the other spouse which might affect your shareholding in a specific manner.
The components of a prenuptial agreement are:
- The extent to which the spouse has the right to sell the shares of the business in the event of a divorce
- The percentage of the shareholding of the spouse
- Any agreement if there existed before marriage.
- In case of the dissolution of the business, how much should each of the main business partners and how much the spouses will be entitled to get?
- The retirement benefits in case the age of the business partner retires due to age or wishing to step out of business.
7. Stop the spouse who is divorcing from becoming a business partner
At times when the divorce process is on, the spouse to your business partner may request to become part and parcel of the business. Whereas this can happen, in most cases, it would create a hostile environment, and you may not be able to continue with the company.
Therefore, you need to stand firm in case of such events and make the court aware that the partnership agreement did not include the involvement of your business partners spouse to be part of the business practices. As such, the court may stop any business transfers if you are involved in the entire proceedings.
8. Selling shares of the business
Your business partner can decide to sell out his shares to see to it that there is peace in the business. He can peacefully agree with the spouse for the spouse to take part in the investments that are not in the company’s business. This will help him decide to sell out his shares and opt to start a business which the ex has no interest in.
This will not only salvage the business but have a peaceful environment. Once you redeem the shares, you can sell to other shareholders who are interested in the business. The only issue that you should be concerned about is the tax implications of the sale of shares because they may also hit the business hard. By this, you must be well knowledgeable of the business to save yourself from the agony.
Conclusion
In any business, a family becomes part and parcel of its operations. It’s therefore vital for you as a partner to be well aware of the implications that may arise in case of such in eventualities. This is because as much as divorce affect your partner emotionally, you will also be affected and the profitability of the business will go down and cause two families to live in agony.
Ensure that the partnership agreements are drafted by a professional and the oath needs to be administered on the onset of the business. This will protect you from being messed up in case such incidents arise in as much as they were not expected to happen.