Shareholder and Operating Agreements and Divorce
Almost all shareholder or operating agreements contain provisions regarding the sale of a partner’s interest. Generally, the agreements restrict the sale of a partner’s interest to outside parties (by requiring that the other partners agree to the sale or by giving them a right of first refusal).
One issue frequently overlooked by corporate attorneys when drafting these sale or transfer provisions is the effect of a divorce of a partner on the other partners and the operation of the business itself. If a partner is divorced, his interest in the business can be awarded in whole or in part to his spouse. If that happens, your new partner is now your old partner’s ex-spouse. This can cause a severe disruption in the operation of the business, to say the least.
However, this situation can be avoided and the health of the business preserved with some advance planning and careful drafting.
In my opinion, the most effective way to protect the business and its partners from having to take on an ex-spouse as a new partner is to provide language in the agreement specifying that the entry of a final judgment of divorce for or against any partner automatically results in the affected interest being offered for sale to the business or the remaining partners. The cost of purchasing the departing partner’s interest can be structured in any number of ways and can be paid for by an appropriate insurance policy.
A small company has its owner going through a divorce. The spouse considers himself a shareholder. The company is not publicly traded, and the wife does have him listed as a VP.He was fired.The shareholder on the company's stock certificate has only the owner's name as shareholder.Is he entitled to 50% of the company's worth?
There were 2 VP's. His name is not on the company inception records.