Can a Buy-Sell Agreement Affect a Business Valuation in Divorce?

A buy-sell agreement can significantly affect how a business is valued during divorce proceedings. Courts and attorneys often examine these agreements closely, but they do not always treat the stated price as the final word on what a business is worth. It’s important to consider the following:

• Buy-sell agreements may include valuation formulas or buyout terms that courts weigh against current business value
• The agreement’s stated price may differ substantially from what the business is actually worth today
• When and why the agreement was created can influence how much legal weight it carries
• Financial records and independent valuations are typically reviewed alongside the agreement

Here at Atticus Family Law, we’re here to answer your questions and help you during this difficult time. Reach out to our attorneys today to see how we can help you during your divorce.

What Valuation, Transfer, or Buyout Terms in a Buy-Sell Agreement May Apply During Divorce?

A buy-sell agreement is a legal contract that dictates what happens to a business interest when certain triggering events occur, such as a partner’s death, disability, or exit from the business. Divorce may or may not be listed as one of those triggering events, depending on how the agreement was drafted. When divorce does trigger the agreement, several important provisions come into play:

• Buyout price or formula: The agreement may set a fixed price or use a formula to calculate what a departing owner’s interest is worth
• Transfer restrictions: Some agreements prohibit transferring ownership to a spouse, which can affect how the asset is divided
• Right of first refusal: Other owners may have the right to purchase the interest before it can be transferred to anyone else, including a spouse

These terms do not automatically resolve the valuation question in a divorce. A family court may evaluate whether the terms reflect fair market value or serve a different purpose.

How Does the Agreement’s Stated Price or Formula Compare With the Business’s Current Value?

Minnesota courts look at whether the buy-sell price represents an arm’s-length transaction, meaning it was negotiated fairly between parties with competing interests. If the price was set artificially low, perhaps to limit what a spouse could claim, a court may decide to look beyond the agreement entirely and order an independent business valuation. Questions courts may ask include:

• Does the agreement’s formula reflect current market conditions?
• Was the price updated regularly, or does it reflect outdated information?
• Did both spouses understand and agree to the terms when the agreement was signed?

If the business has grown substantially since the agreement was signed, the stated price could be far below its current fair market value. It’s important to understand how businesses are valued, and an attorney can help.

Which Details About When and Why the Agreement Was Created May Affect How It Is Considered?

An agreement signed before the marriage, or one that was drafted specifically to minimize marital assets, may be treated with more scrutiny than one created as part of a legitimate business succession plan. Factors that may affect the agreement’s significance in court include:

• Whether it was signed before or during the marriage
• Whether it was part of a broader business plan or created close to the time of divorce
• Whether the other spouse signed or acknowledged the agreement
• Whether the agreement has been consistently applied in past business transactions

Courts also consider whether both spouses were aware of the agreement and whether they had any say in its terms. If a business owner signed a buy-sell agreement during the marriage without the other spouse’s knowledge, that can raise serious questions about whether the terms should be binding in a divorce.

What Financial Records and Business Valuation Evidence May Be Reviewed Alongside the Agreement?

A buy-sell agreement rarely tells the complete story on its own. Attorneys and courts typically look at a range of financial records to understand what the business is actually worth, including:

• Tax returns: Personal and business returns for the past three to five years
• Profit and loss statements: To assess income trends and business performance
• Balance sheets: To identify assets, liabilities, and overall financial health
• Shareholder or partnership agreements: To understand ownership structure and any additional restrictions
• Independent appraisals: A certified business valuator may be brought in to provide an objective assessment

The goal is to get an accurate picture of the business’s value at the time of divorce, not just the value assigned years ago in a contract.

What Should You Do If a Buy-Sell Agreement Is Part of Your Divorce?

At Atticus Family Law, we work with high-net-worth individuals in Minnesota who are dealing with business assets, complex property division, and the emotional weight that comes with divorce. We take a thorough, human-centered approach to each case so that you feel informed and supported throughout the process. Schedule a consultation with Atticus Family Law today. We will review the details of your situation and help you understand what options are available to you.