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How Can A Partner’s Divorce Affect Business?

On Behalf of | Dec 10, 2020 | Firm News

When you choose to go into business with an individual partner, you’re probably not thinking about how their relationships can affect your business. You may have started your business with a partner in a stable marriage at the beginning of the venture and didn’t think how the end of that marriage could impact that business’s ownership.

Learn how ownership and operations can be impacted

Small business owners and entrepreneurs need to plan for a variety of contingencies. Here are some of the considerations for businesses where a partner is going through a divorce:

Ownership: Even if a partner had no part in running the business, a divorcing partner might be able to get a portion of your partner’s ownership stake. If necessary protections aren’t in place like prenuptial agreements and other contracts, a business could be divided amongst the marital assets. Kentucky requires a fair division of property that may not necessarily be equitable in how community property states handle divorce.

Payment: There are several ways your partner can pay a spouse the portion of their ownership they are entitled to. If an ex-spouse is paid in stocks in the company, your partner will not only have smaller ownership of the company, but their ex could be a new partner in the company. This ownership stake could include voting rights in the business. Alternatively, that ex-spouse can sell the stock outright. This loss of liquidity could have longstanding implications for the company.

Protecting the future of your business

After a partner’s divorce, the value assessment of your company can put you at risk of unwanted disclosures during the invasive process of going through accounting and tax documents for valuation. You may need confidentiality agreements to keep your business practices private. Though you can’t anticipate all the ways a partner’s relationship could impact your business, you must plan and react accordingly under the circumstances. Owners may want to go through the risks in their business and apply all available options for maintaining that company’s integrity.