Buy-Sell Agreements Help Businesses Survive Divorce

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Few events can set a business back as quickly as a divorce involving one if it owners. Whether the business is a farm, manufacturing company, medical or dental practice, or other professional practice or business, a divorce and efforts related to getting the parties and the business through the divorce can wreck substantial havoc to the business's bottom line, in addition to the health and emotional wellbeing of all involved.

In Minnesota, a buy-sell agreement or other business operating agreement, partnership agreement, or similar document with buy-sell terms can provide substantial certainty and stability to a business or professional practice. If done appropriately, these documents can help shield business assets and ensure that information, including private and trade secret information, is not disclosed or even relevant to determining the value of the business for divorce purposes.

Judges are not necessarily bound by the terms of a buy-sell agreement in determining the value and disposition of a business in the context of a divorce proceeding, but they cannot completely ignore the document either.

As you can well imagine, the terms and circumstances surrounding a buy-sell agreement are quite important in determining how much weight to afford a buy-sell's provisions. If the ink is not yet dry on the buy-sell when you file for divorce, a judge will likely not give it any credibility or weight at all. But a buy-sell that has been used in prior transactions (even better if those transactions were also divorces), has been negotiated at arm's length and in good faith, and provides a reasonable, rational basis for determining the value of a business in the event of a divorce can serve as an appropriate guide or benchmark as to value. Given the cost of obtaining either an independent appraisal/valuation or of the parties each obtaining their own expert opinion, it is sometimes simply more cost-effective to go with the value listed in the buy-sell. That alone can save divorcing parties tens of thousands of dollars.

In the end, valuing a business is more art than science and an appropriate buy-sell agreement can take much of the variables out of the equation entirely.

Andrew M. Tatge is a partner and chair of the Family Law and Divorce Practice Group at Gislason & Hunter LLP (www.gislason.com). He regularly represents farmers, business owners, professionals, and other high income and high net worth individuals (or their spouses) in divorce and related actions. He also writes and speaks regularly on divorce issues. Andrew can be reached at atatge@gislason.com or (507) 387-1115. This information is general in nature and should not be construed as tax or legal advice.

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