What to Do When A Business-Owner Dies—Lessons for the Surviving Spouse

Filed Under (Probate) on 10-01-2012

When a spouse dies, death of a spouse, probate law

By Marilyn McWilliams, JD

If your business-owner spouse died, you—as the surviving spouse—may suddenly face a raft of decisions. The most important is: sell the business or carry on as the new owner?

If the business is a partnership, and the partners have a buy-sell agreement in place, your decisions are simpler. Without such an agreement, you’ll likely need expert help to sort through the related issues. 

This discussion applies to Colorado sole proprietorships, corporations, LLCs, or partnerships. Note that business succession issues gives rise to more conflict and problems than almost any estate-related issue, so beware.

Step one: Understand exactly what your spouse owned
The first step is determining exactly what your spouse owned. What kind of legal entity was the business, and how much of it did your spouse own? 

Step two: Find the buy-sell agreement
Step two is to locate the buy-sell agreement, also known as a business will or buyout agreement. This is a legal agreement between business partners that says what will happen if any of the owners dies, becomes incapacitated or chooses to leave the business. 

It defines the sale price and the sales terms, making sure that everyone’s interest is protected.  If your spouse was in partnership with one or many partners, you should seek to find this document.  If it doesn’t exist, find an attorney who specializes in business succession and estate planning matters to figure out your next move.

Step three: Determine the business’ value
How to determine the business’s value may be spelled out in the buy-sell agreement. Alternately, you can get the advice about the business’ value from an attorney who deals with business valuation issue, a business valuation consultant or an accountant.

Note that the value of many businesses is tied to the relationships and reputation of the founder. The founder may be your spouse. When your spouse dies, the business’ value may drop accordingly.  That’s why making a rapid decision to maintain or sell the business may be essential.

For more information, see Life After Death – A Legal and Practical Guide for Surviving Spouses  by Marilyn W. McWilliams, J.D.