parties thereto should be contemplating
a potential divorce. Divorce planning for
businesses is essential. Initial formation
documents such as shareholder operating
or partnership agreements may contain
restrictions and/or waivers that protect the
business in the event of a divorce. Parties
can contract regarding whether business
assets stay in the business in the event
of a divorce via a right of repurchase.
Shareholder agreements can provide that
business assets stay within the family.
Trust documents can be used to give
family members a stake in the family
business without surrendering control.
The allocation of control and
ownership rights in the event of a
divorce can also be drafted so as to
necessary for lawyers to be aware of
divorce laws and business laws as a
court must apply equitable principles in
a divorce and these considerations may
render imbalanced agreements void.
Additionally, minority shareholders under
business law can apply to the court for
protections and controlling shareholders
may owe fiduciary duties to minority
shareholders. The results for a business
which failed to plan in case of a divorce
could be disastrous. The business could
experience a decline and if there are
insufficient assets, it could be bankrupted
or may need to be sold. Moreover, divorce
attorneys and business attorneys must
recognize that liquidated businesses may
have significantly less immediate value
than the potential income continuing cash
gratification through a longer-term payout
must be considered.
For a pre-existing business, prenuptial
agreements for owners entering into
marriage are essential. Prenuptial
agreements should be drafted to protect
the business, any increases in value,
and any changes in form. The client may
consider obtaining a life insurance policy,
in a similar value to the business, with
his spouse as beneficiary and owner to
assuage any fears that his or her spouse
would not be provided for in the case of
an untimely death.
Given the high divorce rate in the
United States, a significant number of
people will divorce every year and the
implications can be widespread.