We tend to separate our personal life from our business ones. However, what can happen if our partner in business is also our partner in life and one day we decide to split up?
This is an especially delicate matter you’ll need to look into even before tying the knot. However, if you did not do so, or you were too in love to be a bit more practical, or you started the business later in your marriage, here are 3 ways that a divorce can impact your business, according to Forbes.
3 Ways A Divorce Can Impact Your Business
Disrupting Day-To-Day Operations
Divorce has a way of not letting us move as usual with our lives:
Suddenly you need to fit court appearances into your schedule, you may have to accommodate calls or correspondence with your matrimonial and family law attorney or business appraiser during the workday, and you need to comply with requests for documentation about your company— which can be time-consuming, distracting demands.
It may also distract the employees from the day-to-day tasks of your business and as a result, your employees may be less productive. Which will adversely affect the success of the business. You’ll need help gathering your business documentation, reviewing inventories, etc. They might even need to do a few interviews on how the business is run. All that added to the stress of having to work with the two owning parties that are not on the best of terms (no matter how “amicable” your divorce is).
As an example, even if you are still on friendly terms with your ex-spouse, if you do not split your business tasks and take different business responsibilities, there is a chance that your employees may become confused and stressed. As they may not know whether to listen to your instructions or the instructions which they are given by your ex-spouse. For this reason, it’s important to divvy up your responsibilities if you intend to continue being co-owners of the business which you started together.
For example, you may want to handle sales and marketing, while your partner may want to handle training your employees and ordering inventory for your business. Simply choose a way to divvy up your tasks that makes the best possible use out of each of your skill sets. For the good of your business.
Potential Impact On Your Partners Or Employees
If you intend to divide your business for divorce, you need to choose how you will do so. Will you pay your spouse out in stock? This might be a problem you might share with your partners. Or will your former partner remain a part of your business as a silent investor?
Also, think about how much of the conflict your employees are going to have to deal with. There are many kinds of business and I know that, in some cases, both spouses can play a very important role in the business. Can you both coexist working together? Will you have to hire someone else and figure out all the activities done by your spouse?
Think of it this way: your business might be yet another child you’ll both need to co-parent and try to communicate as much and as cordially as you can. The good news is that you can leave it if it ever becomes too hard to do.
If you think that it may be too difficult to continue running your business with your former spouse, one option that you may want to consider is hiring a manager to work alongside you and for your former spouse to be a silent partner in your business. Or vice versa, if you still want to be financially involved in your business but would prefer not to be involved in the day-to-day management of your business.
Dissolving The Business Altogether
This is the worst-case scenario and it’s not really common. But it’s one that may seem easier if you and your spouse are equal partners and it’s convenient for both. But it’s not the only scenario:
If your spouse is entitled to a big cash payout for his or her share of the value of your business and you don’t have the liquidity, you may be forced to sell or close the business in order to pay your spouse. Another scenario could include a culmination of negative events: disruptions to your operations and team resulting in poor communication with customers and business partners, bad press that damages your brand reputation and discourages people from doing business with you, etc.
You may also choose to dissolve your business if you and your former partner cannot agree on the direction which you’d like your business to take and would prefer to start a brand-new business with your proceeds from the sale of your current business.
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Can I Prevent This From Happening?
The good news is that you can always prevent this from happening. If you are not yet married, you can set everything straight through a prenup. And if you are already married, you can do a postnuptial agreement. So, it’s well worth talking to a lawyer about your options. In order to ensure that you can retain as much of your business as possible.
Here are some of the things to look into for your business, according to Forbes:
If Your Business May Be Subject To Marital Distribution
Whether the business you established prior to your marriage will not be subject to marital distribution upon divorce – even if you may be actively working for the business during the marriage. If you found your business before you get married and signed a prenup before your wedding to protect your business, in the event of your divorce, it’s likely that you’ll be given full ownership of your business. Whereas if you started your business after you tied the knot, it’s highly likely that your former spouse will be given part ownership of the business which you started.
Whether Your Spouse Will Share In The Appreciation Or Depreciation Of Your Pre-Marital Business During The Marriage
If you are still married or are about to get married, it’s important to consider whether your spouse will share in the appreciation or depreciation of the business which you started on your own, once you are married. Also, consider the degree of involvement that your spouse has or is likely to have when it comes to the day-to-day management of your business and whether this may entitle them to a large percentage of your business if you were to suddenly file for divorce.
By Which Methodology The Business Would Be Valued At The Time Of Divorce
In the case of both spouses having an ownership interest during the marriage, would one spouse buy the other out in the case of divorce, would the business be sold and the proceeds distributed, or would you maintain the business partnership in spite of the dissolution of the marital partnership? Only you and your former partner will know which methodology will work best for your situation.
Also, there is a day to day managing strategies that will help you prevent any trouble:
Consider whether there are effective strategies that you can use to co-lead your business with your ex-spouse. For example, you may want to visit your business to keep an eye on it on Mondays, Tuesdays, and Saturdays, while your former spouse may want to check in on your business on Wednesdays, Thursdays, and Sundays. This is a particularly great idea if you no longer work well together and want to minimize your day-to-day contact. Which will make it easier for you to move on from a painful divorce.
If you opt for this tactic, it’s still important to have a meeting with your ex-spouse, for example, a fortnightly meeting, in order to ensure that there is an open line of communication in regards to the performance of your business.
Maintaining Detailed Records Of All Sources Of Business Capital
Whether they were pre-marital or marital funds, as your business goes forward, it’s important to keep records of the sources of all of your capital. Especially if your spouse decides to invest some of their own money in your business. As if you end up divorcing at a later date, the judge may decide to split the ownership of your business by working out how much money you invested in your business and how much money your spouse ended up investing in your business.
Keeping Your Business And Personal Expenses Separate
If you opt for a divorce, the judge will closely examine all of your business expenses, so it’s a wise idea to do yourself a huge favor and to keep your business expenses and your personal expenses separate from day 1. To make the division of assets a whole lot easier.
Make Sure Any Cash Transactions Are Well-Documented
In order to further ensure that your business’ accounts remain up to date, in order for your business to be fairly divided up, if the judge decides not to give you full ownership of your business, it’s also a wise move to make sure any cash-based transactions have been properly recorded.
Paying yourself a fair market salary so that a court will not be inclined to impute a larger income figure to you for purposes of determining support obligations:
Be warned that if you try to pay yourself an unusually high salary for the type of business that you run, if you get divorced and end up being the non-custodial parent, you’ll end up having to pay an unusually high amount of child support. That you may struggle to pay until your youngest child turns 18 years of old.
Paying your spouse, a fair market salary, if he or she works at your business so that there is no question as to whether he or she should receive a larger distribution given the contribution of services:
For example, if your spouse works in the business which you founded alone, prior to your marriage and you don’t pay them a wage or salary for their time, you could end up losing a greater portion of your business if you later get divorced. For this reason, you should always pay a spouse or partner for their involvement.
If Divorce Cannot Be Prevented
You can take the following steps to make it as little disruptive as possible:
- Keep work and divorce activities separate, including maintaining one master file on your computer or laptop for divorce-related items, using only your personal email for divorce correspondence, and limiting any discussion of your divorce with employees and peers.
- Become a master scheduler, including designating a time slot each day for divorce calls and correspondence with your attorney or other contacts.
- Minimize the burden on employees by providing those who help you collect documents with a single list of required materials.
No matter whether you decide to sell your business, buy your ex-spouse out of your business or you’d like to have a go at co-leading your business with your ex-spouse, with great organization skills you should still be able to meet your business goals. For further information, it’s well worth speaking to an experienced divorce lawyer.