How is Spousal Consent Relevant?
Spouses and registered Domestic Partners are not only partners in their relationships; they are also most likely a required third party to many business transactions.
Purchasing a business, transferring a business interest, or forming a new business partnership or entity, whether with a business partner or with another company creates many opportunities for the parties involved and certainly can be an exciting endeavor. However, it also requires delicate attention to details regarding the protection of the business entity and the business interests (whether in the form of shares, partnership interests, or membership units). While it is important to make sure that the true economics of the business, or the bottom line, make financial sense, another important and often hidden detail to address is the personal interests of the business partner or owner of the business interests being acquired or transferred. While business partners/members typically (or hopefully) want to do business with one another, they often bristle at the idea of having to run the business with a spouse or partner of an owner.
When Considering the Purchase of a Business
When considering the purchase of a business, whether it’s assets, shares, membership units or a combination of those interests, you must be certain that you are buying and acquiring all of the right, title and interest in each asset, free from liens and also free from the claims of a spouse or a registered domestic partner. Likewise, when you form a business with your business buddy, or buy into a business as a member contributing capital, the business and the other members or shareholders will likely want protection from the claims or interests of a spouse or registered domestic partner.
Depending on the State of registration of the business and the State(s) of the domiciles of the parties involved in such a transaction, community property laws affecting the ownership status of the interests being transferred can be unknown and complex with burdens of overcoming characterization presumptions created based on the timing of a transaction and the title of the interest.
Help Resolve Uncertainties
To help resolve these uncertainties and maintain security for the parties and the business entity, a Spousal or registered domestic partner Consent agreement can and likely should be negotiated and executed to evidence the nature of the subject property interest as either separate property, or to confirm that the spouse or registered domestic partner is consenting to the agreement, but will have no role in the management or operations of the business. The transferring party can only transfer that which the party owns free and clear of a claim of a community interest. The spousal consent document can and should be utilized to memorialize the stated goals of the parties in at least the following scenarios:
- Buyer of a business interest to receive the interest free and clear;
- Capital contribution in exchange for equity for the interest to be free and clear any claim of community interest;
- Buy-Sell Agreements for shares of stock;
- Operating Agreements for LLCs for capital contributions or for membership interests;
- Membership Interest Purchase Agreements;
- Asset transfers;
- Mergers and Acquisitions;
- Real Estate Transactions; or
- Promissory note where the Lender requires Borrower’s spousal or registered domestic partner’s consent to cover any community property interest in the Borrower’s assets.
Contact a Professional
The information provided herein does not, and is not intended to, constitute legal advice; instead all information, content, and materials are for general informational purposes only. Neither this website nor this post are intended to create an attorney-client relationship.
If you have a question on whether spousal consent is necessary or advisable, please contact Kelly Stone or give our business transactions team a call at (805) 546-8785 if you would like guidance on a business purchase or other business transaction.
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