In an ideal world, partners in a marriage and business would work perfectly together and everyone would be happy and successful. But the world is not ideal, and almost 50% of marriages end in divorce. Marriages between entrepreneurs suffer an even higher divorce rate!
So as a business owner married to your business partner, it’s a good idea to consider the possibility of divorce when developing your business plan. Remember that planning for the worst does not mean you will create the worst. It simply means that you have wisely developed contingencies should the worst happen.
Interestingly, planning for the possibility of divorce can have the opposite effect. If you are aware of the full ramifications of divorce, it may very well give you the incentive you need to keep your relationship healthy. It could motivate you to work together to nip any problems in the bud before they become insurmountable.
I encourage my entrepreneurial couple clients to create a partnership agreement after or in contemplation of beginning an entrepreneurial venture. It is a document that can go a long way to define the parties’ mutual rights and obligations in the event of a divorce and dissolution of the partnership. The agreement may specify which spouse will carry on the business. It may define each spouses’ respective contributions to the business and how much would have to be paid to buy out the other partners’ interest in the business.
This is not to say that you can’t run your business together after dissolving your marriage. Some people choose to stay in business together, and they are happy and successful while doing so. But others cannot continue to work together and need to divide up their interest in the business.
Often, we don’t think of these things ahead of time. Most entrepreneurial couples just wing it when it comes to business or marriage. They trust their drive and intelligence to get them through life’s roadblocks. They believe love is enough to carry them through as a couple. But as life becomes more complicated by marriage, children, and an expanding business, the weaknesses in this style begin to emerge.
So if you are in a stable marriage, please read on. Be advised of the preparations you can take now that could save you anguish should a divorce occur down the road.
And if you are at the point where you have made the decision to divorce your partner, please note the following steps to dissolving your business partnership when you divorce:
Contact a qualified attorney. Try to work with an attorney that is familiar with entrepreneurial couples and your unique needs.
- Ask the court to decide which spouse will have the management responsibilities of the business until the divorce is final. During a divorce, trust is low and secrecy is high. Bypass these issues by having the court give one person management responsibilities. This can be done in a way where the non-managing spouse still has access to inspect the business premises and financial records.
- Honestly appraise your business. It is possible that your business doesn’t need to be appraised. If it does, hire a neutral business appraiser. When a modest business is involved, you can take the practical approach of valuing the equipment and accounts receivable. It is a relatively inexpensive and non-combative way to value your business. Fighting over intangible assets of your business, like goodwill, reputation, and position in the market, isn’t usually worth it.
- Decide who will get the business. If you have both put your hearts and souls into the business, this can be a tough decision. If the two of you can make this decision before going to court, you’ll save yourself a lot of money and heartache. Keep in mind that typically the court will award one spouse the entire marital interest in the business, which also includes the debts. The other spouse receives an equitable share (typically half) of the net value of the marital interest in the business.
- When it’s over, move on. Even if things don’t go the way you wanted, you still have the choice as to how you respond. Dust yourself off and move on. Look to the future. Remember, you’re an entrepreneur. Divorce doesn’t take away that spirit.