No one likes to plan for a marriage to fail, but if you are an entrepreneur with a small business, you stand the chance of losing ownership in your company if you don’t take certain proactive steps.
Ideally, the time to do this is prior to getting married, by clarifying what happens to the business and its assets in case of divorce, i.e., it remains yours. But that’s not always feasible for various reasons. The next best solution is to draw up a postnuptial agreement defining your company as your separate property. But family court judges can look askance at postnups that favor one spouse much more favorably than the other or that were executed fewer than seven years from a divorce filing.
All is not lost
If it’s too late to take the above steps, don’t fret. There are still ways to minimize the fallout of a divorce on your business. Below are some tips to coming away with your company as unscathed as possible.
- Maintain completely separate business and personal accounts. Absolutely no dipping into one to siphon cash for the other. Commingling marital funds with your business is a recipe for disaster in a divorce.
- Make sure that you are well paid. It can be tempting to try to live on $100k a year so that you can add another $200k to your company’s coffers. But this can be penny-wise and pound-foolish when it’s time to split down your assets. You just made your business a sought-after target for your spouse when it comes to settling marital assets.
- Retain someone to fairly valuate your business. This must be done crunching today’s numbers. Never use projected income figures, as no one can predict the future of a business with any accuracy. Stuff happens, and some of that stuff can affect the viability of your company.
- Give your spouse his or her pink slip. If your spouse has been working at the company along with you, the sooner you are able to separate him or her from the company, the better off you will be.
- Raise funds to buy out your soon-to-be ex-spouse. Can you borrow against a life insurance policy? Sell shares of stock to employees? Take on a partner with a minority interest and the ready cash to settle up now? Get creative and brainstorm with your family law attorney and financial planner.
- Relinquish other assets. Offer your interest in the retirement accounts, the antique gun collection, the family home, the chalet in Gstaad . . . whatever the ex will agree to accept in lieu of an interest in your business.
- Negotiate to pay off your spouse over time. If you can make installment payments over time, all the better. This gives you a chance to grow your business and boost your income stream.
Divorce can be a traumatic, emotional experience, but there’s absolutely no need to make your business suffer due to your marital woes. By planning carefully and seeking legal advice from divorce professionals, you and your business can emerge from you r broken marriage fully intact.