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Could a Business Partner's Divorce Derail Your Company?

There are many benefits of going into business with partners, but there are also a few drawbacks. Namely, did you know that if your partner's marriage ends, your business could wind up on the rocks as well?

Marital property is divided equitably during a divorce, which can include business assets. If this happens, your partner's ex could become a shareholder who has a say in how your business operates.

The good news is that there is a way to prevent a partner's divorce from disrupting your business (that doesn't require you getting involved with his or her personal life).

As discussed in the latest issue of Entrepreneur magazine, the best option is to include a contingency for divorce in your business' partnership, ownership or shareholder agreement.

Essentially, what the divorce contingency can do is require a partner's ex-spouse to sell the business interest that he or she was awarded in the divorce back to the company.

Because the provision should contain specific terms and conditions for valuing and buying back the shares, it should be drafted by a law firm with both family law and business law expertise.

The Entrepreneur article further suggests having partners' spouses agree to the divorce contingency in writing prior to any marital discord in order to help bolster its enforceability in divorce court.

Along those same lines, Entrepreneur provided additional advice on planning for divorce and other unexpected life events that can throw off the day-to-day operations of a business such as a family death, illness or disability.

It suggested establishing a contract for how these events should be dealt with, including who should take over the duties of a partner who needs to miss work for an extended period of time, and at what point his or her compensation should be impacted.

At Hendershot, Cannon, Martin & Hisey, P.C., our attorneys have extensive knowledge surrounding business law, family law and the overlap of the two, and we have assisted numerous Texas business owners in addressing these matters.

Protect your business by scheduling a consultation with one of our knowledgeable Houston attorneys.

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