Starting your own business is an exciting and fulfilling venture. Being able to see your ideas come to fruition, make money, and provide for those you love can be a rewarding experience.
But what happens if you and your spouse own a small business together, and your marriage is no longer working out? What do you do?
If you are on the verge of getting an annulment and are worried about how your divorce will affect your small business, the information in this article could help.
Does Divorce Affect A Small Business?
Yes, in most cases, your divorce will affect your business. In some cases, couples have even lost their businesses, according to Andrew Zashin, an Ohio based divorce attorney.
Even if you and your spouse do not own the company together, taking time off work to see lawyers will impact your company. You won’t be there to manage your business as much as needed; you might spend hours searching for documents, and remember time is money.
Some couples have even spent much of their revenue paying divorce lawyers, going to trial, and paying for mediators. So, in short, divorce will affect your small business, but some businesses aren’t as severely affected as others. A lot depends on you and how messy your divorce is.
How Does Divorce Affect Small Businesses?
1. You Could Become a Partner With Your Ex
If your spouse is not a partner in your company, they may soon become one. According to Online Divorce, in many cases, your business may be viewed as marital property. Marital property is anything acquired during your marriage. It is considered to be owned by both spouses and is split accordingly. Since most states want a divorce to be fair, your partner could end up becoming a partner in your company through the divorce.
Therefore, if your spouse has contributed to your company’s growth in any way, they could be awarded a partnership in your firm or even be eligible for half of your shares. Even if your spouse only contributed financially to your company or as a homemaker and primary caregiver to the children allowing you to put more time and effort into the business, your business could be viewed as marital property. They might then be entitled to a large percentage of your company.
2. Your Spouse Could Try To Sabotage Your Business
This might seem ridiculous, but sadly this has happened before. An angry spouse might want to sabotage your company by calling clients or stopping clients from working with you. Plans need to be put in place before your spouse does anything out of spite.
3. The Court Might Use Money From Your Business To Pay Off Your Ex
In some cases, your ex might not be awarded a share in your company, but the court might use money from your business to pay off your ex as the only way of distribution. Though this is not always the case, it can happen. There might be other ways to pay off your ex, for example, giving them the house, the cars, and retirement funds.
4. A Divorce Takes Valuable Time Away From Your Business
As mentioned above, a divorce can get messy. If your divorce is full of strife and anger, you could spend countless hours away from your company meeting with lawyers, attorneys, and mediators. The more time you are away from your company, the more could go wrong.
5. Divorce is Costly
Divorce can cost thousands of dollars. If your company is doing well, you might not worry too much about divorce fees, but if your business is just breaking even, or if it’s a new company, you might worry about how you will pay for your annulment. Some couples take loans out against their businesses, leaving them in debt to pay for their divorce. Be careful that you don’t take out debts you cannot afford to pay back, which could result in you losing the business you fought so hard to keep.
6. You Could Lose Your Company
This is extreme, but sadly it has happened. Some divorces get so ugly that companies just don’t survive the backlash.
It’s Not Just Doom And Gloom Though
All of this may sound like doom and gloom, but there are steps that you can take to save your company. We need to be candid about how divorce can affect small businesses, and the above-mentioned points are things that could happen. But with the right amount of planning, a great lawyer, and a cool head, you could make your divorce work for you, keep your business and enjoy financial freedom.
So What Can You Do To Save Your Business?
. Get a Prenuptial Contract
Before you get married, have a prenuptial contract in place. This is a contract signed before your wedding day that states what will happen in the event that a divorce should occur. If you already own a business before you get married, you could state what happens to your business in the event of an annulment.
The contract must be in writing and signed before a witness or notary. Your finances need to be fully disclosed, and your future partner cannot be coerced into signing the contract.
A prenuptial agreement is the best way in which to protect your business during a divorce.
. Sign a Post-Nuptial Contract
A post-nuptial contract is signed after your marriage. Though the court carefully reads the postnup and doesn’t always view it as ironclad, it is better to have this in place. Sign a postnup soon after your marriage, though, for courts to view it as “solid.”
. Do Not Let Your Spouse Work For You
If your spouse participates or works in your business, even as a secretary, they can have a claim to your business. Their lawyer could argue that they helped your company grow, and therefore deserve shares. Your spouse might also feel that they deserve a piece of the pie because they worked in your company.
. Put Your Business in a Trust
Have your company put into a trust, as this will remove it from being viewed as marital property.
. Get a Buy-Sell Agreement
A buy-sell agreement can protect your business in the event of a divorce. A good tax or business lawyer can have this written up for you.
. Come To An Agreement Together
Something many couples tend to forget during divorce is how important it is to talk with each other. Talk about what you can do to save your business. You could perhaps buy out your spouse or give them something else in return for full ownership. Sometimes, simple communication is the most effective way to come to the best solution for both parties.
If your marriage is ending on amicable terms, talk about what you can do to both get what you want.
. Keep Personal and Business Expenses Separate
When you keep personal and business expenses separate, your company is viewed as a separate entity. The business is more likely to remain separate from marital property. This might be complicated to achieve, though, therefore speaking to a business lawyer might be your best option.
. Pay Yourself a Salary
By paying yourself a salary, you will be getting a draw from your company instead of reinvesting in it. If you keep reinvesting money into your business, your spouse might want some of that money.
. Find An Experienced Lawyer
If you own a small business, seeking advice from a business lawyer or an experienced lawyer will be the wisest course. They can help you figure out the best way forward to save your company.
Divorce and business ownership do not always mix. Things can get messy in most cases, but with the right amount of planning and a good legal team, you and your spouse can come to an amicable agreement.