When spouses are getting divorced, North Carolina law requires that assets acquired during a marriage be valued so that the marital estate can be fairly distributed to the divorcing spouses.When a divorcing spouse owns a business, the business interest must be valued as part of the marital estate. Frequently, only one of the spouses actually operates the business, although the other may own shares. Under these circumstances, divorce presents a number of issues for the divorcing business owners (and their fellow partners or shareholders), including:

whether a court will order the spouse who operates the business to transfer shares to the spouse not participating in running the business; whether a business can redeem shares held by the non-participating spouse, and for how much;
How much information, including sensitive financial and/or proprietary information, a business must disclose
If the owner who operates the business must pay the non-participating spouse for his or her marital interest in the business, how that interest is valued.

Business owners can take a number of steps to protect their interests in the event of divorce.

Protective Policies

As a preliminary matter, before a divorce is on the horizon, business owners should put policies in place to address the rights of owners in the event of divorce, including rules or restrictions on the transfers of ownership interest in the company.

Partnership, shareholder and/or operating agreements may contain provisions that protect owners’ interests in the event that one of the owner’s gets divorced. The provisions vary depending on the size and makeup of the business. For example, a family-owned corporation may require pre-marital agreements and restrictions aimed at preventing shareholders from selling or giving their shares to anyone outside the family. Some examples of protective provisions include:

A prohibition against the transfer of shares without the approval of other partners or shareholders;
The right, but not the obligation, of the business or individual owners to redeem the shares or interest of one or both of the divorcing parties so that the owners maintain control of the business.

A requirement that non-participating spouses sign an agreement in which he or she consents to be bound by the provisions in the Shareholder or Operating Agreement regarding restrictions on the transfer of shares or interest. For instance, the spousal consent may contain a provision that the transfer of shares pursuant to a divorce is prohibited or that if any shares are transferred to him, he may hold those shares but will not have voting rights or other power to control the business.

Make sure to continue reading for Part 2 of this story on protecting your business during a divorce by Cathy Hunt a leading Divorce Lawyer in North Carolina 

This entry was posted on Thursday, June 12th, 2008 at 4:11 pm and is filed under Separation and Divorce. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.