In a nation where some 30 percent of businesses are co-owned by spouses—and 40 to 50 percent of all first marriages end in divorce, it's not unwise to consider ways you can protect the business you've built from unforeseen circumstances. Think of it as a better-safe-than-sorry approach to mixing business and marriage.
It isn't a question of intelligence. Even the smartest and most successful business pros can entangle their fortunes in matters of the heart. (Consider oil baron Harold Hamm and the news of his impending divorce—a separation happening sans pre-nup—that put Hamm's $11 billion fortune on the line.) And although your small business's stakes might not be eleven figures large, you want to ensure that, if your love life and the work you love become intertwined, then it can also all be untangled.
Here are five strategies for navigating a divorce when it comes to your business.
1. Be rational and consider compromise. "A personal breakup does not have to signal the end of your business," says Matt Kaufman, head of Incorporation Services at Rocket Lawyer. "First and foremost, both involved parties need to separate discussions concerning the business from any private and personal property squabbles." This means the couple needs to navigate away from emotional involvement in the situation, as much as possible. Objectivity will lead to business-centric thinking, and protecting the business—its worth and integrity—is a top priority.
2. Hire an independent business appraiser. If you and your partner are not joint owners, then agreeing on what is the value of the enterprise can become problematic. With the owning partner looking for a low value, and the non-owning partner looking for a high one, the valuation method that is used—whether asset-based, income-based or market-comparables based, as well as the discounts taken—can all be a matter of dispute. Get an independent professional involved. Don't even attempt this one on your own.
3. Know local laws. This is critical. While most jurisdictions will include the value of “enterprise goodwill” in a business appraisal, many will exclude “personal goodwill.” Some states will not even distinguish between the two types and allow for valuation of both. Your attorney and your business appraiser need to agree on strategy and valuation methods, and both need to keep an eye on current cases, evidentiary rules and statutes that could affect your outcome.
4. Think about role transition. If you and your spouse decide that you'll both continue to work together in the business, the divorce could require a change in roles. For example, one individual may end up no longer working in the enterprise as a partner, executive or board member. His or her replacement might need to be addressed as part of the divorce process, in such cases. And if one spouse has a new role, it’s essential to clearly define—and potentially limit—that role in the company, in order to prevent future disputes.
5. Be transparent, and don't make any sudden moves. Don’t make major changes to your business model during the divorce proceedings. For example, this is not the best time to appoint your new boyfriend or girlfriend to your board of directors. A move like this can be a red flag in court; you could jeopardize your business and even face fines.
So, if these are your waters, charting a course away from the worst of your business-romance heartache is about proceeding with knowledge, honesty and help. In time, even the deepest of wounds will fade—but your small business, in light of divorce and separation, doesn't have to disappear for them to do so.
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