Basic Training: Does Divorce Litigation Affect a Business Partnership?By Nina Kaufman, Esq.
It’s said that more than 40 percent of all marriages in this country end in divorce. So there’s a not-insubstantial likelihood that your business could be affected by divorce . . . even if you’re not the one divorcing. Here’s today’s query:
Q: My partner’s ex-wife is suing him for a large amount. Can it affect our business if my partner doesn’t pay on the due date? Also, I am thinking of buying the business from my partner. What are things I need to ask and sign?
A: There is a possibility that your partner’s ex-wife’s lawsuit could cause a problem for your business. Among other ways, if she gets a judgment against your partner, she may be able to collect against your partner’s assets . . . and his ownership of the business is one of his assets. Make sure to review your partnership agreement (if you have one)–many of them provide that if the stock (or ownership interest) of one of the owners becomes subject to a lien or judgment, it triggers a buyout by the corporation (or other owners).
If you choose to buy out your partner at this time, you’ll want to consult with an accountant to get a fair value of the business, determine the price you’ll pay and how much time you’ll have to pay it. You’ll also want to speak to an attorney to make sure that your purchase/sale transaction doesn’t somehow get embroiled in your partner’s litigation. Look for certain safeguards in your purchase and sale documents (often referred to as “indemnification”) where the partner will protect you and the company in the event that the wife widens her litigation net to include you.
Above all, get it in writing and be aboveboard in handling the transaction. The last thing you need is the wife poking around in your transaction (and possibly voiding it) with the allegation that you didn’t offer fair value or that it was a “sham” you and your partner cooked up to stiff her out of her rightful due.