While many California couples own and run a business together without incident, the business could be contested in a divorce proceeding if the couple ever decides to end their marriage. Some couples have significant wealth invested in the business, and it is possible the business could be sold to finance a divorce settlement. However, according to Marketwatch, there are several avenues that a spouse or spouses can take to protect a business from divorce fallout.
First, couples can take steps before they get married. With a prenuptial agreement, couples who own businesses can spell out what they want to happen to the business in the eventuality they divorce. Ordinarily, California business property is subject to the community property laws of the state, but if a prenuptial agreement is carried out properly, it can circumvent state law with the terms laid out by the couple.
Not all couples, however, will choose to draft a prenup. If so, spouses can draw up a buyout agreement. Also known as a buy-sell agreement, this document can require a spouse to sell back interest in a company to the other spouse, even if the interest is gained during a divorce settlement. The buyout agreement can also set a price ahead of time. Such a price can be determined by evaluating how much the business is worth. All facets of a buy-sell agreement should be mutually agreed upon before proceeding with one.
Sometimes a divorcing couple may see no choice but to sell the business and move on with their lives. This can be a painful choice, but some spouses may wish to make a clean break from each other. However, not all businesses will sell right away. It is possible a divorced couple will still be stuck with a business for some time while they wait for a buyer to emerge. In such a case, it may be better for the couple to try and maintain a cordial professional relationship and work the business together, at least until a sale is made.
However, if an ex-spouse still wishes to buy out the other spouse’s interest, it is possible to explore options such as taking out a bank loan or to seek venture capital or private equity to finance a buyout. Sometimes adding a third partner to the original business can help, although the Marketwatch article recommends that the former spouse set up a buyout agreement with the new partner.
This article is intended to educate readers on how divorce can affect businesses owned by married couples and is not intended as legal advice.