Legal Lifesaver
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Family Law and Family Business

Husbands and wives often both own shares in a corporation that runs a family business, sometimes because they are both active participants in the business, and sometimes as part of an income splitting or creditor protection plan.

There is a tendency for spouses not to enter into shareholder agreements, which is quite understandable. On the other hand, this tendency can create a legal mess upon divorce.

Two (of many) principles to think about:

1. Although family law might "equalize" the value of shares held by the spouses, this does not mean that it will give the spouses equal rights to be involved in the business or to control the business. Which spouse has voting control of the board of directors and the corporate power to decide who will be allowed to work for the company, does matter.


2. Family law will not give one spouse the right to insist that the other spouse buy or sell shares in the corporation or create a clear path that will necessarily lead to one spouse ending up owning all of the shares of the corporation.

Every spouse thinking about putting shares of his or her corporation in the name of the spouse for income tax or creditor protection purposes should think about whether it is really a good idea, and consider whether there are better alternatives, such as using a family trust.

Every couple involved in a business together should consider having a shareholders agreement.

Murray Gottheil
Pallett Valo LLP

Photo by Maureen T. McKay