Divorces are still common despite the fact that the world is changing. How do spouses handle a business they cannot value or divide? This article will discuss methods of division. It will focus on in kind division, and deferred purchase-outs. This article will address nominee and holding company methods, as well as tax issues and due diligence.
You have three options when it comes to dealing with a business in high net worth divorce: Buyout, Sale or Co-ownership
- Because there is no risk of divorce, a buyout is the best option. In uncertain economic times, valuation can be difficult. Equalization can be difficult due to the fact that a family business is usually the most valuable asset a couple has. This means that there may not be enough assets available to give one spouse the business in exchange.
- A sale is the second option. Many people don’t want their business interests to be sold because they have been developing and growing it for many years.
- The third option is co-ownership. This is dangerous. This article will focus on structuring co-ownership of business interests between spouses following divorce. This is a temporary arrangement that will remain in effect until the parties are able to arrange a buyout. This is the ultimate goal. Once the business is reliable valued or there is enough cash to equalize each spouse’s share, then there can be a buyout. So, there will eventually be a way out.
It is important to do your research to ensure that everyone enters this co-ownership structure fully informed and up to date on all aspects of the business:
- Get in touch with a business lawyer early.
While it’s wonderful to be able issue spot to find these things, you will need to hire a business counsel to help with the heavy lifting.
- Ask for documents to confirm the entity’s structure, obligations, and client’s guarantees.
Take, for example:
– Articles of incorporation/organization
– Minutes and Bylaws
– Stock register
– Operating agreement or shareholder agreement
– Employment agreement with the owner spouse
– Purchase-sell agreements
– Financing agreements
– Guarantees
- Voting Rights and Privileges
Different voting classes may exist. One spouse may have super control, even though the other party would not own the shares.
– Do there exist different types of voting rights?
* Who is responsible for the control of the board and who makes appointments to it?
– Does equity disappear if an owner ceases to be a service provider
Summarized from an article by Walzer Melcher & Yoda LLP.
