4 provisions to include in a buyout agreement

On Behalf of | Aug 31, 2022 | Divorce |

Going through a divorce may be especially concerning to you as a business owner. If your spouse owns any interest in your company, you might have to sell off your business to split its value with your wife or husband. This possibility is why business owners create buyout agreements to sign with a spouse.

A buyout agreement, also known as a buy-sell agreement, mandates that a business co-owner must allow the business to buy back his or her ownership interest in the company. A good buyout agreement should include a number of provisions.

Triggering events

Nerdwallet explains that buyout agreements should describe situations that require the company to buy out an owner or contributor’s share. These triggering events generally include the owner suffering incapacitation, death, bankruptcy, the loss of a professional license, or imprisonment. Divorcing the business owner may also serve as a trigger.

Valuating the ownership interest

Your spouse will likely want to receive a fair price, so your buyout agreement should establish the fair value of your spouse’s ownership, perhaps by naming a person or company to appraise the spouse’s ownership share at the time of the sale. Waiting until the divorce to work out a valuation method may lead to conflict if the spouse does not agree on how to valuate his or her interest in the company.

Establish buyers

Your buyout should name who in your company should buy the ownership interest of your spouse. You may receive the ownership interest yourself or you might decide to name another co-owner as the buyer if it is not feasible for you to take your spouse’s share of the business.

Multiple payment options

Buying out your spouse in a single sum could be a problem if your business does not have enough money for a lump sum payment. You might avoid this if your agreement permits you to pay your spouse with a down payment followed by staggered payments over a period of time.

Buyout agreements may contain specific provisions depending on the business involved. Still, the aforementioned provisions could be a benefit to a business owner who is going through a marital breakup.

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