Why a buy-sell agreement is essential with a business partnership

| Sep 16, 2020 | Divorce |

Business partnerships are an excellent method of increasing the size and cash flow of a Minnesota company. They can help growth in the short term, and they often provide additional intrinsic company value. However, the value of the company can be a real issue when a partner gets a divorce as they are already locked into a business relationship with respect to property accrued during their marriage. The question becomes the actual value of the business and how much of that value is property of the divorcing spouse who will no longer be involved in ownership.

A buy/sell prenuptial agreement is always advised when a new married business partner is being accepted because a divorce could jeopardize the business when settlements are court ordered. Businesses can lose a significant portion of financial value growth when a divorcing spouse wants whole value of their ownership percentage.

A buy-sell agreement typically states the terms for a buyout if a divorce occurs, and all parties must agree to a specific valuation amount.The agreement serves as protection for all partners in the event of a divorce by any one business partner. In addition, it could save significantly regarding legal fees and court costs when the business is attempting to avoid a major debt issue or possibly even a shutdown under certain circumstances.

This is an issue that all business or divorce attorneys will advise should be addressed before entering into a marriage or partnership agreement. When marriage partners are also partners in a business, this can be a very important life issue for co-owners because it affects all families of the association. Many times, all business partners are married, and each owner has very limited input into what transpires within the other marriages. Owning a business means protecting that business at all costs, and the buy-sell agreement is highly effective in this goal.