People put a lot of energy and time into creating their businesses and it often takes years before they start earning a profit. When all this development is threatened by a business partner’s divorce, Texas residents may feel overwhelmed, but, the truth is, a business partner’s soon-to-be ex-spouse may actually be entitled to a portion of the business, unless there are provisions in place to prevent such a situation.
The first factor to consider is how the partner’s share in the business will be divided. The divorcing partner may decide to pay out the other with shares of stock, giving the divorcing partner either a say in the business or an opportunity to dump the stock and affect the value of the business. Alternatively, if the divorcing partner must liquidate their stock, then the business faces the difficulty of figuring out where the liquidity will come from. Similarly, as the divorce drags on, the divorcing partner can be distracted from their work and the business’s health may suffer as a result.
There are ways business people can protect themselves from such situations. One way is to have an early and honest discussion when a partner gets married and encourage them to create a post-nuptial or pre-nuptial agreement to outline the division of one’s assets. Changing the type of shares from preferred to common can be another way to reduce the value of one’s interest if control is being divided.
There is no doubt that a partner’s divorce can have a significant impact on one’s business but there are ways to mitigate one’s situation. It might help to speak to an experienced lawyer before creating a business or before divorcing to understand the options available for protecting one’s business assets.