Steps to Take After Dividing a Business During a Divorce

Starting and managing a successful business requires a lot of time and effort. Most businesses fail within the first few years, swallowing up the money and human capital that was invested. There are many land mines along the road to a business’ success, but one event that can be most decimating is a divorce.

Since the value of a business in whole or in part can be included as marital property, it may not matter whether both spouses started the business, were partners, worked side by side, or if one was simply a limited partner or not directly involved in its operation.

If one spouse can show that he or she invested money, labor, advice, or expertise in the business, or if there was an understanding that he or she would quit school or keep a job so that the other spouse could build the business, the business may be included in the divorce settlement as marital property and its value divided between the spouses.

Could Have, Should Have

There are several measures that most people do not take advantage of to attempt to shield their business from the devastations of a divorce.

The measures include a prenuptial agreement which establishes how interests in the business will be handled in the event of a divorce. The good news is that the same measures can be taken after the divorce, after the business assets have been divided, to protect the enterprise in the future and to help rebuild.

Steps You May Take After The Divorce Include

1. Relive the spouse of their duties:

If you did not buy out your spouse’s interest in the business as part of the settlement, find a way to do so now. Try to secure a loan or sell off assets to raise the funds. You may try to ease your ex-spouse away from the day-to-day operation of the business by limiting his or her presence and influence.

2. Sell shares of the business to employees:

Raise capital to rebuild the business by creating an employee stock ownership plan through which the employees buy a minority stake in the business. Another option is to find an angel investor to buy a minority stake.

3. Enact a buy-sell agreement:

This type of agreement, also called a buyout agreement, is a legally binding agreement that dictates what happens if a co-owner dies, is forced to leave the business, or chooses to leave the business. The agreement may control these business decisions:

  • Who can buy a partner’s or shareholder’s share of the business;
  • Which events necessitate a buyout, such as death, divorce, disability, retirement; and
  • What price will be paid for the interest in the partnership.
4. Buy insurance:

If you purchase a whole-life insurance policy that builds cash value, you can liquidate the policy and use the proceeds to buy out an ex-spouse or ex-partner’s share of the business.

5. Make installment payments:

Arrange to make payments to your ex-spouse over time using business cash flow or a bank loan.

Contact A. St. Louis Divorce Attorney

Take precautions now to protect your business from the demands of a departing spouse or business partner. Call (636) 532-2300 today for a Free Consultation and speak with Jay Galmiche, a seasoned St. Louis Divorce Attorney with over three decades of experience. The Galmiche Law Firm, P.C. serves the areas of Chesterfield, Ballwin, Town & Country, and Wildwood, Missouri, along with surrounding areas.