It’s often said that choosing a business partner is like entering a marriage—and for good reason. You share responsibilities, make critical decisions together, and invest your time, money, and energy into building something lasting. But what happens when your business partner experiences a real divorce?
A partner’s personal separation can quickly turn into a business complication. If not handled correctly, your shared company could be pulled into legal and financial crossfire. Fortunately, there are proactive steps you can take to protect your interests—and your business.
Time for a Tough Conversation
Once you become aware that your partner is going through a divorce, the first step is open, honest communication. Ideally, your partner should come to you with the news directly. But if you hear about it from someone else—or suspect that something is going on—it’s appropriate to ask for confirmation.
Approach the conversation with empathy, but be firm in your need to understand how this could impact your shared venture. Remember, this isn’t just personal news—it could quickly become a business matter.
Get a Business Valuation—Sooner Rather Than Later
Divorce proceedings often require a full financial picture, and that includes the value of your business. Even if your partner’s spouse isn’t directly involved in daily operations, they may still have a marital claim to your partner’s share of the company—especially if it was formed or grew during the marriage.
Hire a professional to conduct a formal business valuation. Knowing the current worth of your company will not only protect your own interests, but it could become a vital document in the divorce litigation process. If a buyout becomes necessary, this valuation will serve as your foundation.
Be Prepared to Participate in the Divorce Process
You might not want to be involved in your partner’s personal matters, but if your business becomes part of the divorce asset pool, you likely won’t have a choice. You could be asked to provide financial records, testify about your company’s operations, or explain the ownership structure.
Now is the time to ensure that:
- Your books and accounting are up-to-date.
- All contracts and ownership documents are accurate and accessible.
- Your business license, tax filings, and operational structure are in legal compliance.
Having everything in order not only protects your company but also prevents it from becoming collateral damage in the divorce proceedings.
Understand Your Partnership Agreement
Your operating agreement or partnership contract is your business’s rulebook—and you’ll need to revisit it now. It may contain language about how ownership interests are handled in the event of a divorce, death, or departure of a partner.
Key questions to consider:
- Does the agreement restrict the transfer of ownership shares to outside parties (like a spouse)?
- Are there provisions for buyouts or valuation methods in the case of involuntary ownership changes?
- Is there a clause that allows for dispute resolution if partners are at odds?
If your agreement doesn’t cover these scenarios, you may want to work with a business attorney to amend the partnership agreement and put safeguards in place moving forward.
Protecting the Business from the Fallout
While your partner’s divorce may be a personal crisis, your priority is the continued stability of the business. Keep lines of communication open, involve legal counsel early, and document everything. Divorce can introduce unpredictable financial and emotional variables, and having a solid plan is your best defense.
If you believe your partner’s divorce could affect your business—or if you’d like to prepare your company for the unexpected—our attorneys at Lesak, Hamilton, Calhoun & Pontieri are here to help. We can review your partnership agreements, assist with valuations, and advise on proactive steps to protect your company’s future.
Contact us today to schedule a confidential consultation.