Kajko, Weisman & Colasanti, LLP

Why buyout agreements help when business partners divorce

When Massachusetts couples go into business together, sometimes if that marital relationship ends, it can have ramifications for the business the two jointly own. In a divorce litigation, a company owned by a divorcing couple could end up dissolved or sold off if the spouses contest ownership of the business or its assets. However, high asset divorce does not have to destroy a couple’s business if the couple elects to sign a buy sell agreement.

According to Findlaw, a buy sell agreement, which is also called a buyout agreement, can be made between all of the partners of a business in which they spell out what will happen in the event their partnership is altered. Specifically, buy sell agreements establish what happens when one or more partners leave the company. In the agreement, partners can state that one partner can be bought out at an amount determined by the value of the ownership interest. The agreement may also state the circumstances that trigger buyouts, and who can buy the partnership interest. It may be one of the partners or even an outsider if the partners wish.

Buyout agreements are important because they keep the future of the company in the hands of its owners. Without a buyout agreement, a partner leaving the business can trigger legal action that might require that the business be dissolved.  According to an article run by Marketwatch, businesses owned by a divorcing couple can run into serious problems. In some cases the couple has substantial net worth in the business, and one spouse may not have enough cash to buy out the other. The business may have to take on heavy debt or be sold off completely.

Such problems can be avoided if a buy sell agreement is put in place. Spouses can set up an agreement under which one spouse can be bought out at a price that is mutually agreed upon by both parties. In the event the two ex-spouses cannot work together professionally, one may exercise the buyout option without requiring legal intervention to sort out business disputes.

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