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A business partner getting divorced raises a hard question: can their spouse end up owning part of your company? In Florida, the answer is sometimes, in part. A divorce court can treat a business interest as marital property, but what the spouse actually receives depends on the court’s order and on your company documents.
Can My Business Partner’s Spouse Really Own Part of the Company?
Yes, it is possible. A Florida divorce court can award a spouse part of a partner’s ownership interest, or a cash payment in its place. Whether the spouse receives an interest or cash turns on how the court classifies and values the interest and on its equity findings, and your company documents may limit what a transferee can do with it.
Under section 61.075, the court starts from the premise that marital assets should be divided equally, unless a justification supports an unequal split. The statute lists the marital interests in a closely held business among marital assets and sets how to value them. It also lets the court weigh how desirable it is to keep a business interest intact and free from the other spouse’s claim or interference.
To do equity, the court may also order a monetary payment, in a lump sum or in installments, in place of or in addition to dividing the asset itself. So the spouse may receive money instead of ownership.
Does It Matter That My Partner Owned the Company Before the Marriage?
It can matter, but it does not settle the question. A stake acquired before the marriage is generally nonmarital, yet growth in its value during the marriage can still be marital. That happens when the growth results from either spouse’s efforts or from marital funds.
Written agreements can change the picture. The statute excludes assets that a valid written agreement of the spouses takes out of the marital estate. Under section 61.079, a premarital agreement must be in writing and signed by both spouses, and it can address each spouse’s rights in property and what happens to it on dissolution. A spouse can challenge enforcement on limited grounds the statute lists, such as involuntariness or fraud.
What Rights Would a Spouse Get in a Florida LLC?
Under the LLC statute, a transferee gets economic rights only. A spouse who ends up holding part of a member’s interest through a transfer has a right to distributions, not a vote or a role in management. The firm’s page on LLC member rights covers how those rights work.
Under section 605.0502, a transfer of an interest does not entitle the transferee to take part in managing the company, or generally to see company records. The transferee has the right to receive the distributions the transferor would have received. The transferring member keeps the other rights of a member and all of a member’s duties. If a member transfers the entire interest, the other members may be able to expel that member by unanimous consent.
The LLC statute’s definition of a transfer includes a transfer by operation of law. It also says a transfer that violates a restriction in your operating agreement is ineffective as to anyone with knowledge or notice of the restriction when the transfer happens. Whether a divorce order is such a transfer, and how a court treats your agreement’s restriction, are questions for a lawyer who has read your agreement and the divorce file.
What Changes If My Company Is a Corporation?
A spouse who is awarded shares and registered as the record holder could become a voting shareholder, and a valid transfer restriction may limit that. Florida’s corporate statute defines a shareholder as a record shareholder. Unless the articles or the statute say otherwise, each share carries one vote, and a shareholder can demand to inspect certain corporate records.
That can matter most when votes are close. In a company with two equal owners, a spouse who votes shares can change the outcome of a close vote, which is where voting deadlocks arise.
Section 607.0627 lets the articles, bylaws, or a shareholder agreement restrict the transfer or registration of transfer of shares. A restriction can:
- Require an owner to offer shares first to the corporation or others.
- Require the corporation or others to buy the shares.
- Require approval of a transfer, if that is not manifestly unreasonable.
- Bar transfers to designated persons or classes of persons, if that is not manifestly unreasonable.
A restriction is enforceable if it is noted conspicuously on the share certificate or contained in the required information statement. Unless it is so noted, it cannot be enforced against a person without knowledge of it. It also does not reach shares issued before it was adopted, unless their holders agreed to it or voted for it.
How Can a Partner’s Divorce Hurt the Company Without Any Transfer?
Through valuation and cash. In a contested divorce with no filed stipulation, the court’s findings must identify the marital assets and value the significant ones. The standard for a closely held business is fair market value. Enterprise goodwill, meaning goodwill separate and distinct from the owner spouse’s continued presence and reputation, is a marital asset the court must value. In practice, valuing the interest can put the company’s financial records at issue.
Cash is the second pressure point. A partner who owes a large payment may look to the company for bigger distributions, a loan, or a buyout. If the court orders installments, it may require security and a reasonable rate of interest, or otherwise account for the time value of money.
Treat any request to move company money toward a personal obligation as a possible conflict of interest transaction, and keep the paperwork. Related warning signs are covered in signs a co-owner is mismanaging your company.
What Can I Do Now to Protect My Company?
Start with your documents, before any transfer is on the table. Five steps come first:
- Read your operating agreement, bylaws, or shareholder agreement. Look for transfer limits, first-offer or buyout rights, and how the document can be amended. See how Florida courts interpret an ambiguous LLC operating agreement.
- Check how ownership is recorded. In a corporation, confirm whether any restriction is noted on the certificates or information statements.
- Ask your partner whether a written agreement covers the company interest. A premarital or other written agreement between spouses may matter.
- Hold off on informal deals. Do not approve a transfer, loan, advance, or change in distributions tied to the divorce until a business litigation attorney reviews it.
- Know your exit options if trust breaks. Compare a buyout with a full split in business divorce vs. dissolution and buyout valuation, and see the firm’s business divorce page.
For planning before a dispute starts, read how to protect your ownership stake before a shareholder dispute erupts. Attorney Charles Jimerson represents owners, executives, and growth companies on contracts and disputes, and the firm’s operating agreement and partnership agreement page covers drafting.
What Facts Decide How a Partner’s Divorce Affects Your Company?
Five facts change the answer more than anything else:
- Your entity type and documents. LLC or corporation, and what the operating agreement, bylaws, or shareholder agreement say about transfers, buyouts, and amendments.
- Dates. When your partner acquired the interest, when they married, and when the divorce was filed.
- Spousal agreements. Whether a premarital or other written agreement addresses the company interest.
- Ownership and control. Each owner’s percentage, and who controls the votes, the books, and the bank accounts.
- Company value and cash. What the business is worth and how much cash it can spare without strain.
These facts decide the outcome, and an attorney needs to review them before you act.
Is a business partner’s divorce putting your ownership at risk? Talk with a Jimerson Birr business litigation attorney before you approve any transfer, loan, or distribution.
How Can Jimerson Birr Help With a Business Partner Getting Divorced?
When a business partner getting divorced puts your ownership in question, Jimerson Birr’s shareholder dispute attorneys represent LLC members, shareholders, partners, and companies, from the first demand letter through trial. Call (904) 389-0050 or request a free consultation. In a corporation, a restriction adopted later does not affect shares already issued unless their holders are parties to it or voted for it, so review your documents before any transfer is proposed.