Business partnership agreement - No ex-spouse claim

[Welcome]

Hi All,

For a business partnership agreement, is it worth adding a clause that should the unthinkable happen and one of the partners split from spouse have some clause in there saying "no ex spouse has claim to any stake in the company /partnership"?

Or would the family courts see right through any clause as such?

Of course, will seek professional advice before proceeding..... just seeing if anyone has any experiance with similar.

Cheers

 

[rugrat]

Honestly, I believe that would be essentially a waste of time. The family courts would still take it into consideration in determining who gets what (if amicable agreement cann't be reached). At most it may mean that the person involved in the business partnership would have to sell up their share in order to pay the debt owed to their ex.

The family courts do not look fondly upon spouses not attempting to share / split fairly / justly. (although, obviously different people have different veiws of what this actually constitutes).

Of course I could be wrong, but I don't think so.

What are you attempting to do with this clause? Protect the partner's rights against any present or future obligations to a spouse? Or protect the business partnership from martial disruption.

If it is the former, The courts will just laugh at you most likely - the only way around that is for the individuals in the marriage to have a binding financial agreement enacted that specifies that the business partnership shall remain the property of one individual.

If it is the latter, The it wouldn't matter much anyway, the courts may determine that the individual owes an amount that equates to the spouses share in the business partnership - which in turn would more likely then not equate to the business partner having to cash in their partnership for the funds, unless they happen to have sufficient funds outside of the business partnership (ie, property, shares, etc) that can be used tocover that debt to the spouse.

 

[RPI]

A partnership agreement can be drafted to be quite restrictive on who can constitute the partner. However if the partner is a real person then their ownership is personal and as such the value of that ownership is accessible to anyone who can have access to that person's assets.

Personal names in business are bad news. You are jointly and severably liable for any debts lawsuits etc. that means all your assets, not just business assets.

See a lawyer and set up a better structure. eg:
partnership between 2 trusts (your & theirs)
unit trust with respective partners owning units through their own trust
Company.

info not advice see a lawyer
RPI

 

[marg4000]

All assets will be considered in the event of a marriage breakdown. It would then be up to the separating couple to agree a division of assets. The spouse could receive other assets to make up for the value of the business.
Marg

 

[Welcome]

What are you attempting to do with this clause? Protect the partner's rights against any present or future obligations to a spouse? Or protect the business partnership from martial disruption.

Main objective would be to protect the business from potentially being owner by someone that would not have the businesses best interests in mind. What about a clause where if someone seperates, courts have decided wife gets x% of business, can we say other partner/s have first right to buy out the exspouse?

See a lawyer and set up a better structure. eg:
partnership between 2 trusts (your & theirs)
unit trust with respective partners owning units through their own trust
Company.

Current setup is partnership of discretionary trusts.

 

[Terryw]

The Family Law Court can make orders on third parties such as companies or trustees - this can over ride trust agreements, company constitutions or other agreements.

They can also treat property such as shares, land, businesses as property of the marriage even if held in one name. This is especially the case if both parties worked on or in the business, or maybe took care of the household so the other party could devote themselves to the business.

Also any income from the business could be treated as a financial resource of the parties.

So you couldn't really draft a way around the Family Law Court. The only possible way is for someone to totally hide their involvement from their spouse and to never receive an income from the business - but then you would have to hope the person who was holding your share for you did not get divorced...

You should also probably not be entering a partnership in personal names. Both partners will be jointly liable for all debts of the business.

 

[alexlee]

Terry, would these two strategies be allowable:

1) 'Key person' insurance that benefits the business
2) Right of first refusal by the surviving partner to buy the business at a fair and equitable price?

 

[Terryw]

Hi Alex

The insurance may not apply for Divorce, maybe only death or sickness etc. I am not sure about that.

You could probably also do something with options. First right of refusal too. But if we are talking about Divorce, then I am not sure they would work. You couldn't really have the trigger being the divorce.

 

[Kinnon Bell]

What about a buy/sell agreement (put/call option)? You could put divorce as the specific even that needs to occur in the contract.

 

[Terryw]

You could put that - but would it be effective is the question to ask.

The proceeds of the sale would certainly be property up for division of the divorcing party - but I guess it may leave the remaining partner without the burden, which might be the intention.