Transferring ownership interests of a business is common in a divorce settlement. When dividing martial assets in a divorce, the divesting (exiting) spouse will typically either receive a buyout from the spouse who will continue ownership or receive marital assets of equal value. The divorce decree and settlement will document the division of property between the spouses.
Formalize the Transfer of Business Interests Between Spouses
However, simply having a divorce decree and settlement addressing the transfer of ownership interests in a business does not offer the spouse who retains ownership much in the way of protection from potential problems in the future. It is important to take additional steps to secure the business when transferring business interests in a divorce:
- The recipient spouse should secure a stock transfer or equivalent for use in matters related to the business from working with lenders to potential buyers. A signed transfer document will include detailed provisions that are not typically part of a divorce settlement agreement, but will be important to conducting all manner of business moving forward.
- The recipient spouse should secure a broad release of claims against the business from the divesting spouse, which may include anything from employment claims for back pay, vacation time, and sick days to claims related to distribution of profits generated by company. The release will also confirm that the divesting spouse has resigned from all positions in the business and has no right or authority to act on behalf of the business thus protecting the owner from potential liability.
- Confirm transfer of all rights by the divesting spouse in the transfer agreement by broadly describing the transfer agreement to include all rights, title and interest of every kind related in any way to the business, including all intellectual property of the company such as company names, trademarks, trade secrets and patent rights. The transfer agreement should also include transfer of any designs, intellectual property or products personally developed by the divesting spouse while working at the business.
- The recipient spouse may want to request that the divesting spouse sign a restrictive covenant agreeing to not compete in a business that is competitive with the subject business for a reasonable period of time within a reasonable geographic area.
- Request that the divesting spouse sign a confidentiality agreement prohibiting him or her from using or transferring any of the business’s confidential information or trade secrets.
- Consider liability insurance coverage for third party claims that may arise against the divesting spouse after the transfer of ownership.
- Seek the services of a tax advisor when transferring ownership of business to ensure a smooth transfer of ownership.
Contact an Experienced Attorney for Help
With so many families engaged in owning and operating small businesses across the nation, transferring ownership interests in a divorce is fairly common. It is very important to consider various issues related to the transfer of business interest in a divorce from the valuation of the business, transferring interests of the business to a spouse, to even how a pre or post nuptial agreement can protect the business in a divorce. When you are considering divorce and have a business, it is crucial to work with an attorney who has the skill, expertise and experience to handle your transfer of business ownership. Contact Ronald L Bell & Associates P.C. for help today.