Spousal Consent: Get it Signed!

While many business owners will knowingly take on risk to pursue their business venture, I would gamble to say that they are mostly, if not all, risk-averse when it comes to the possibility their business (company) could be dragged into a contentious divorce of one of its shareholders. 

Marriages, where a spouse is a partner, member or shareholder in a business, is not unusual; in fact, with the explosion of start-up and emerging growth companies, it seems like it is the norm rather than the exception. These business interests are most often accompanied by a corporate agreement, typically a shareholder, buy-sell or operating agreement, signed by the spouse working in the business. This agreement dictates the spouse’s rights and obligations with the business. But what about the spouse who is not working in the business?  Is he or she bound by these same terms? 

The Spousal Consent Form

The document that is usually the last page of the corporate agreement signed by a spouse is a “Spousal Consent” form. Before discussing best practices of such a consent form, it is important to note that in California, Registered Domestic Partners have essentially the same rights as a spouse and therefore the consent of a Registered Domestic Partner should be obtained the same as a spouse. [For ease of this post, these consent forms will be referred to as “Spousal Consent” forms and the spouses or Registered  Domestic Partner of the person working in the business will be referred to as the “spouse”.]

The Spousal Consent form typically seeks the consent of the spouse to the terms of the corporate agreement so that the same terms agreed to by the working spouse bind the spouse with regards to the spouse’s rights and obligations with the business including the disposition of the community property interest in the business. This is important from  the standpoint of the business because the business hopes to predict what will occur when a member dies, retires, or divorces (i.e., provides the business with control over who will be involved in ownership) and intends that the terms in the agreement will prevent the business from being part of a divorce between spouses. Future posts will focus on the best practices of these corporate agreements in the context of divorce, but this post focuses on the best practices relating to the Spousal Consent, which are:

  1. Not at the dinner table. It is important that the spouse that is asked to sign the Spousal Consent be provided a fair opportunity to review not just the Spousal Consent form, but the corporate agreement itself. Therefore, the working spouse should be advised by the business’ lawyer that it is not advisable to bring just the Spousal Consent form to his or her spouse for signature or to bring the corporate agreement itself to his or her spouse at the dinner table asking for a signature while sitting at dinner. Rather, the agreement should be provided to the working spouse’s spouse in its entirety giving him or her the opportunity to review the entire agreement. 
  2. Independent counsel with waivers. The Spousal Consent itself should provide, thereby informing the spouse, that he or she has a right to seek and consult with independent counsel before signing the Spousal Consent. The failure to seek counsel will constitute a wavier, which should be expressly stated in the Spousal Consent. As stated above, the spouse should be given a reasonable opportunity to seek the advice of counsel. 
  3. Failure to do it right may constitute a breach of fiduciary duty. If the working spouse does not give his or her spouse the fair opportunity to read the entire Agreement and time to seek independent counsel, one can imagine that the spouse who signed the Spousal Consent without full knowledge of its legal implications or signed under pressure, may claim his or her spouse breached their fiduciary duty owed as a result of their marital relationship.

I spend a lot of time speaking with corporate lawyers and reviewed many of these Spousal Consent forms and am aware of how many of them get signed at the dinner table without a full review by the other spouse. And, while I understand all of the reasons why there is concern about giving a spouse the full opportunity to review the agreement including with counsel, my question to every business owner and their corporate counsel is, would you sign an agreement without the opportunity to read, review and discuss this agreement with a lawyer? Invariably, the answer is “no” 

As business owners and corporate counsel, there should be no disagreement that the goal is for all contracts entered into be done with the thought of reliance and enforceability so as to mitigate risk if the agreement must be enforced.  If this is the goal, then the same rules of entering a contract should be applied to the Spousal Consent form.