Vacanti Shattuck Attorneys

How Can My Spouse And I Co-Own A Business After A Divorce?

Co-owning a business with your spouse after a divorce is possible, but it is not advised. Most of the time, in divorce proceedings, the court wants one party to own and operate the business. However, there are exceptions. In the past, a few parties have been able to continue to co-own and co-operate their business together after a divorce. Some have been successful while others became horror stories. But, it’s certainly possible.

When a couple wants to continue to own and operate their business after a divorce, a corporate attorney or business attorney usually gets involved. There’s going to be some additional legal documents that need to be drawn up relating to the corporate structure or buyout. When you own a business with your spouse, you don’t normally think about a buy-sell agreement if something goes awry. When a divorce happens, you are going to want to set provisions in place in case your business relationship goes south after the divorce. Therefore, involving a business or corporate lawyer is essential.

How Will Stock Options In A Jointly Owned Business Be Divided In A Divorce Case?

Stock options are mostly seen in situations where someone is an employee as opposed to an owner of a business. If you are an employee of a business, stock options are usually granted to mid-level and upper-level executives. Large companies are usually the ones that grant these options. A stock option gives a person the right to purchase shares of stock in that company at a specific price after a specific date. So, they are often set out years in the future. For instance, if you can purchase a stock option to buy stock in a company at $20 per share on January 1st, 2021, then when January 1st, 2021 comes around and the stock is trading at $30 a share, you would have a $10 per share gain.

In that situation, if there is a divorce, and stock options don’t mature until years in the future, the divorce court is going to award the spouse that does not own the stock options, a share of those options. If the employee exercises those actions in the future and receives some profit from exercising those shares, then the non-owning spouse would get 50% of the profit from those shares. It can be complicated, but if the value is accumulated during the marriage, even if the shares aren’t exercised until years down the road, the non-owning spouse would still get a share of the stock options. If you own the business, the process would the same. If there are options that are exercised down the road, the non-owning spouse would still get his or her share of those proceeds. But, that type of scenario is generally seen with big companies where people are employees as opposed to owners.

Can I Be Protected From My Spouse’s Business Debts In A Divorce?

You can be protected from your spouse’s business debts in a divorce. For instance, if the spouse who owns the business has a loan at the bank that was taken out to operate the business, and the non-owning spouse signed as a guarantor or co-signed the loan, the simplest way to protect the non-owning spouse is to have the owning spouse renew the loan. The owning spouse could also get a new loan that takes the non-owning spouse’s name off of the loan. So, unless the non-owning spouse has signed as a co-signer or as a guarantor, he or she would not have any liability for that obligation. It would just be the owning spouse that would have liability. But, if the loan still shows that the non-owning spouse is a guarantor or co-signer, he or she has liability to the lender if the owning spouse doesn’t pay the loan.

With that type of situation, the attorney would build into the divorce decree a hold harmless clause. For example, the owning spouse can protect and hold harmless the non-owning spouse from any liability related to the business. However, if the owning spouse doesn’t pay the debt, the bank or the lender can still sue the non-owning spouse regardless of the hold harmless clause. If that happens, a counter suit could be filed against the owning spouse that says that the owning spouse agreed to hold the non-owning spouse harmless. It will include that the owning spouse needs to pay their share of the debt and pay the non-owning spouse’s attorney’s fees as well. It is complicated, but there are ways that can protect the non-owning spouse from liabilities.

For more information on Co-Owning A Business After A Divorce, a consultation is your next best step. Get the information and legal answers you are seeking by calling (402) 235-6070 today.

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