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What preventive meassure can I take to protect a start-up business (Corp.) with two partners should either party get a divorce?

Beverly Hills, CA |

My business partner and I are starting a business (Corporation) and she is also getting married and I too am headed in the same direction. With the divorce rate what it is today, I worry about the repercussions of divorce and the effect it could have on our business. Mainly, the jeopardy we would be in regarding majority shares. Would the spouse of either partner be entitled to shares or have any stake in the Corporation?

Attorney Answers 5


  1. You should conract an attorney and have a shareholders agreement drafted that contains provisions governing the rights of the founders (the two of you) to purchase the shares from the other shareholder if certain events occur. There are many reasons and provisioins that are contained in a shareholders agreement which should be drafted at the onset of the formation of a corporation. Seek a business attorney who can advise you on the typical provisions in a shareholder's agreements.

    Hope this helps!

    THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is philsmithjr@worldclasslawyers.com.


  2. Consult with an attorney who can draft a shareholder's agreement for you and your partner.


  3. Whenever an entity has two or more "owners" they need a "buy-sell" agreement to provide a formula for valutation and sale in the event of death, permanent disability, or desire to retire. Often there is a right of first refusal in the event of a third party sale. Other triggering events, such as divorce can be customized for your needs. Without such an agreement there is no public market for the equity - you may want to sell (or or in your case force a sale) and there may be to willing buyer.

    If the equity in the company is deemed community property, the court would otherwise have the option to divide "in kind" as opposed to valuing for an equalization of community property.

    The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.


  4. As others indicate, you should use a corporate attorney to draft a buy-sell agreement, and you should both have your spouses sign a consent of spouse accepting the terms of the buy-sell. To have a higher level of comfort that your buy-sell agreement and the spousal consents will be fully enforced in family court you and your partner should both have prenuptial agreements.


  5. You need a buy sell agreement which states that should that if there is a divorce the divorcing spouse has no right to either share. This is a common clause between owners of companies who have spouses. However, make sure the spouses sign off on the agreement.

    The above is not meant as legal advice but an illustration.

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