Canopy Law > Shareholder Agreements > What effect does divorce have?

What effect does divorce have?

It’s one thing sharing ownership of your company with a business partner who you (hopefully) chose to go into business with. It is quite another experience to share the ownership of the company with the business partner and his former spouse after they have divorced and a Court has awarded her half of his shares as part of the settlement.

Courts do not like to be overridden by a private contract and reserve the right to make a decision that is in the best interests of any children involved. However, there are a couple of ways that you can help yourself against unpredictable divorce settlements:

  1. consider a pre-nuptial agreement. It is not watertight, but a carefully considered pre-nup will be given weight by the Court.
  2. if that boat has already sailed then a Shareholder Agreement can specify that shares must be offered to existing shareholders first, and can specify trigger events (transfer of shares outside of the existing shareholders) and a valuation mechanism. It can also limit what a spouse can do with their shares if they are awarded any.

The Court will be reluctant to take steps that would damage the livelihoods of other shareholders. For example, by ordering a sale of the business to pay for the divorce settlement.

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