Business Owners Face Disaster When Divorcing
Business Owners Face Special Challenges On Business Ownership in Divorce
Two years and three days after Frank and Jamie McCourt issued a statement to announce their separation, the McCourts issued a statement to announce a divorce settlement. Jamie McCourt who fought her ex-husband for half ownership of the team, agreed Monday to surrender the bankrupt team to Frank. She walked away with a promise — but not a payment — of about $130 million.
Unless you are baseball fan, this means little to you, right? Wrong. It is great example of the disaster that a dissolution proceeding can bring to a ‘family business.’ Most people aren’t squillionaires with mansions and baseball teams, but many people own their own businesses. One or both spouses works there and a divorce messes things up.
In addition to problems between spouses who own a business together, there can be problems for third parties. Often two or more persons own and run a business together. One owner gets divorced and the other owners suddenly find themselves in a tough spot. The records of the business–particuarly its profits or losses may be scrutinized in the divorce court case. The spouse of the owner will likely claim an interest in the business and may try to exert management control.
How can you avoid the drama? You can’t. But, you can avoid a disaster. How? With planning of course. Planning may include a prenuptial agreement or buy-sell agreements between owners of a business, or both. (A buy-sell agreement, also known as a buyout agreement, is a binding agreement between co-owners of a business that governs what happens if a co-owner dies, is forced to leave or chooses to leave the business. It may be thought of as a sort of as a prenuptial agreement between business partners/shareholders
No matter how much you like your business partner’s spouse, you really don’t want him or her in the business. Do you?
We can help. If you own a small business talk with us about business planning and exit strategies. If you are contemplating divorce discuss the particular challenges you face as a business owner.