One of the glues that holds relationships together is clear communication. For small-business owners who are also married, this can often best be bolstered by a contract.
That's according to Charley Moore, founder of Rocket Lawyer, an online resource for legal documents and advice. Because when the worst times (read: divorce) hit a small-business-owning couple, the damage can be more widespread than just a broken home.
Partners at the helm, married or not, carry with them heavy obligations. The shared business earns money not just for them, it also fuels paychecks for employees, supports shareholders and becomes something vital to vendors as well.
The future of everyone involved can ride on how this works. Moore offered the following advice to help ease the complexities of marriage, divorce and small-business.
Prenups, Buy-Sells and Other Business Protectors
"In a worst-case scenario, the divorce requires one of the spouses to sell their portion of the business in order to provide for the division of the community estate," Moore says. Couples should prepare in level-headed ways from the beginning to protect each other, should a divorce occur. Here's what they can do:
"The way to separate the business from you, personally—and I certainly think this is part of how to think about it in terms of marriage—is to incorporate," Moore says. Owners become stockholders, and stock is a different kind of private property to negotiate than ownership of the business itself. Also, this is the point at which a description of contributions to the business should be set down. "If one is an 80-percent contributor and the other is 20-percent, that is what the ownership documents ought to reflect," Moore says.
Put simply, this is a contract between spouses that defines what happens to assets in case the marriage is ever dissolved."You want to make sure that you identify your separate property, especially your business ownership," Moore said. "You keep it separate for the duration of the marriage. If you do that, you ought to be protected from the business being included in the community property estate, if ultimately the marriage does end in a divorce." The agreement should also reflect the ownership split, whether it's 80/20 or 50/50. Include it in both the documents of incorporation and the prenup.
"A buy-sell agreement is going to cover how a business can be sold," Moore says. "It protects you and the other spouse. It defines what's going to happen to the business, which can be of enormous help in emotional and stressful times." For example, one side may agree to sell all their stock in the event of a divorce. A buy-sell also helps to protect a business's employees and other materially involved individuals, defining what happens to them when the business moves into new hands.
Some business owners decide that a business should go into trust upon the dissolution of a marriage. If that's the wanted scenario, a couple needs to have documentation that says so on file. Documents should also define how a business will change as couples change relationships. What role will biological children have in the company? What about new children from new marriages?
Approaching the Topic
So, how does one start this conversation with a fiancé or spouse?
The answer, according to Moore: "It's hard to do if you're both emotional about it. The right way to do it, if you've already got the business up and running, is to say: 'Hey, I've got this business; I've got these people who depend on this business.' When you frame it that way, it's really hard for the other person not to start to understand the gravity of the issues. You're talking about your employees and their lives."
"If you haven't started a business yet, and you're thinking about it," says Moore, regarding couples. "I would still always frame it in the context of who's going to depend upon that business, and how we can organize this to be most respectful of all the people who are going to be dependent on that business?"
O'Brien blogs for numerous clients on topics that include: film, social media, writing, technology, marketing, business and design. He is a correspondent for Boston University's Research Magazine and for The Commons, a journal covering higher-education. He has written extensively as a news correspondent for The Boston Globe. James blogs via Contently.com.
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