Asset Protection: As high-profile divorces become more common, Indian business families are implementing stringent equity transfer clauses in their family agreements to safeguard their businesses during divorce proceedings. Recently, a business family from Kolkata sought the assistance of a Mumbai law firm to include these strict clauses in their family agreement ahead of their child’s wedding. The purpose of these clauses is to ensure that the family’s business interests remain intact and are not divided in divorce settlements.
Thus, strict measures are in place
Experts indicate that business families are placing firm restrictions on transferring equity to non-family members. Their family agreements stipulate that if shares need to be transferred as part of a divorce settlement, they must first be offered to current shareholders or the company itself. Without robust protections, a divorce involving shareholders can lead to claims on business assets, disrupt corporate governance, and undermine ownership, jeopardizing the stability of businesses that have been established over generations, according to Rishabh Shroff from the law firm Cyril Amarchand Mangaldas.
Asset Protection Strategies
To further protect their assets, businesses may encourage family shareholders to enter into pre-nuptial or post-nuptial agreements that clearly define financial boundaries in the event of a divorce. Anand Desai from DSK Legal notes that any pre-nuptial agreement that contradicts divorce and alimony laws will be deemed invalid. However, there are ways to safeguard business share ownership through trust structures, which can impose restrictions on share transfers and include call options.
Voting Rights in the Company
Beyond asset protection, business owners are also enhancing their voting rights within their companies and adding buyback provisions to their governance structures. This allows them to reacquire shares that may otherwise be lost to family control during a divorce settlement.