We have done two previous posts on this blog about steps business owners can take to protect their business from the financial consequences of a divorce. In this post, we continue that series with a general discussion of buy-sell agreements.

Buy-sell agreements set forth the details regarding the transfer of ownership interest in the business. These details will include the terms and conditions of the transfer, including any "triggering events" like death, disability, or divorce.

uy-sell agreements for closely held businesses should at the very least:

• Provide instruction regarding the market for the sale/purchase of ownership interests

• Provide a mechanism to determine the price, terms, and conditions for sale/purchase of ownership interests

• Indicate the source of funds for the purchase of ownership interests

There are various other matters a buy-sell agreement can address. The following questions give a sense of the options available to business owners.

• Do you want to prohibit an owner (or the estate of that owner) from transferring and/or selling ownership interests to third parties without prior written consent of the other owners?

• Do you wish to restrict the ownership of any interest to a particular group?

• Do you want the ownership interest to automatically convert into non-voting interest upon the occurrence of a trigger event?

• Do you want to provide the business and/or other owners with a mandatory right of first refusal to purchase the ownership interests form a departing owner, the estate of a deceased owner or the ex-spouse of a current or departed owner?

• Do you wish to require all the owners to establish prenuptial agreements before marriage or remarriage which would require that owner's future spouse to waive any/all rights to ownership interest in the business in the event of a future divorce?

Spouses with ownership interests in limited liability companies, partnerships, and corporations may also establish agreements setting forth the way in which the business is owned and managed. While such agreements are not legally required, they give owners more control. Without such an agreement, questions of ownership and management of the business will be governed by its home-state's default rules.

Such agreements can detail:

• How profits and losses are assigned

• Procedures for transferring and buying/selling ownership interests

• Various other matters, including restrictions on the ability of former spouses of owners to have ownership interests in the business

In drawing up buy-sell agreements, it is wise to work with an attorney to ensure that you are in the best possible position to achieve your personal and business goals.

Source: Huffington Post, "How To Divorce-Proof Your Business: Buy-Sell Agreements," Jeffrey A. Landers, 3 Feb 2011.