Business partners who are married to each other typically find that a business relationship is difficult to maintain after a divorce. Therefore, it may be necessary for one spouse to transfer his or her ownership stake in a California company to the other spouse. The person who is giving up an ownership stake needs to be sure that the he or she is protected from any future claims that the company’s creditors may try to make.
It is important to obtain a document releasing the transferring party from any claims that the business may make against him or her. These claims would most likely be made by that party’s former spouse who still has an ownership stake in the company. Finally, it is important to review a K-1 to ensure that it is free of phantom income that could trigger a taxable event.
If there is insufficient equity for a buyout to occur when the marriage ends, there should be a set date at which it will happen. In the meantime, the person who is being bought out should be allowed to maintain veto or other rights to any decisions that could impact the company’s performance. This can help to protect the value of the ownership stake that is going to be sold in the future.
Those who need to sell their business after a divorce may benefit by speaking with a high-asset divorce attorney. He or she might be able to structure both the sale of the company as well as the divorce settlement. If a couple has a prenuptial agreement, an attorney may review it to determine if the agreement is valid. Even if it’s valid, both parties to the divorce can agree to change its terms if necessary.