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Most people have heard of premarital agreements (also known as prenuptial agreements), but you may not have heard of Buy/Sell agreements.
If you are a part owner of a multi-owner business (or are married to one), you will want to acquaint yourself with Buy/Sell agreements because they are a bit like the business equivalent of a premarital agreement: they spell out what happens to the married partner’s ownership interest in the event of a divorce. Like a premarital agreement, it is typically signed long before divorce is being considered.
A Buy/Sell agreement is a contract, signed by all the owners of a multi-owner business, intended to prevent a former spouse — whether by death or divorce, or current spouse of a business owner who becomes disabled — from participating in the operations and/or ownership of the business. Usually the Buy/Sell agreement includes a right of first refusal for the business to buy the owner’s ownership interest in the business and a formula for calculation of the value of that ownership interest or a method of calculating the ownership interest.
If the Buy/Sell agreement stands, the Court will follow that valuation method. Without a Buy/Sell agreement, the community ownership interest in a business must be valued for the Court to divide or award the ownership interest in the business in a divorce. If the spouse who is not participating in the business succeeds in getting the Court to set aside the Buy/Sell agreement, then it is the same as not having a Buy/Sell agreement.
Unless the business is a professional one that requires the owners have a particular professional license — such as a doctor, lawyer, dentist or the like — the Court has the power to award the community ownership interest to both spouses in fractional amounts or all of the community ownership to one spouse.
What happens to a divorcing business owner’s ownership interest in a business
if they don’t have a Buy/Sell agreement?
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