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How a buy-sell agreement protects your business during a divorce

On Behalf of | Mar 15, 2022 | Divorce |

Most people prefer not to think about the possibility of getting divorced. However, if you are a small business owner, the ability of your business to survive after a divorce could depend on it.

A buy-sell agreement is one tool you can use to help ensure your business can continue after a divorce.

What is a buy-sell agreement?

A buy-sell agreement is a legal document that defines what happens to a business when a partner leaves. Even if your spouse is not an official partner in your business, a divorce can affect what happens to your business because a business that you start during a marriage using joint funds is community property in Texas.

How does a buy-sell agreement protect my business?

A buy-sell agreement allows you to specifically state what will happen to your business and how you will calculate the value of your spouse’s share of the business if you get divorced. This puts you in control, instead of leaving it up to a judge to decide.

In addition to specifying how to determine the value of your spouse’s shares, the agreement can specify how your spouse can sell those shares. This may protect you from your spouse selling out to someone you do not want to have an interest in the business.

Buy-sell agreements are not foolproof but can go a long way toward establishing an equitable means of dividing business property without sacrificing the business. To be effective, keep your buy-sell agreement updated as your business and family change.