November 1, 2019 |
Divorce

How divorces impact businesses

Written By: Reich, Jumbeck, Stole & Reeb

When business owners in Illinois get divorced, it can take a toll on their companies. This may be true whether a former spouse may become a part-owner of the organization. During the divorce itself, an individual may have to split his or her focus between ending a marriage and running a company. If an enterprise is owned by multiple people, the end of a marriage could be a distraction for everyone responsible for running it.

Businesses with multiple owners may use buy-sell agreements to buy a divorcing partner’s share of a company. However, without such an agreement, it may be necessary for a company to go into debt to keep it out of the hands of an owner’s former spouse. Three owners of startup company GreenPal had to personally guarantee a $250,000 loan to buy out a fourth owner who was ending his marriage.

One key benefit of a buy-sell agreement includes the ability to determine the cost of a buyout ahead of time. This may prevent stress or anxiety related to having to repay a significant amount of money. However, it may be possible to challenge the terms of such a pact in court, which means that its terms need to be legitimate in the eyes of a judge.

In a divorce, most types of property that are accumulated during a marriage may be subject to division. This could include an ownership stake of a company or a share of any profits generated during the marriage. If a couple has a prenuptial or postnuptial agreement, it may determine how a company is divided when their marriage ends. An attorney may review such an agreement to determine its validity. Legal counsel may also examine these agreements before they take effect.

Written By: Reich, Jumbeck, Stole & Reeb