Divorce as a Business Owner: 4 Things to Consider
For many people, entrepreneurship is the definition of the American dream. Citizens strive to become small business owners. They hope to nurse their good idea into a sustainable enterprise that will support their family for years - and even generations - to come.
So what happens if the business you worked so hard to build is suddenly threatened by divorce? It can be difficult to imagine how you’ll ever arrive at an equitable division of assets, ownership, or intellectual property with your spouse.
All is not lost. There are four aspects of your business you’ll want to consider as you move forward with the divorce process:
Formal roles
The first thought most people have in this process relates to who owns the business “on paper.” This includes things like the business license registration (i.e. LLC, S-Corp), the filing of business taxes, and the name in which any property and utility bills appear. Any formal titles such as CEO or president may also be taken into consideration.
If you are the partner whose name is on most of the above documents, you might feel fairly secure in your claim to the business. However, if you share formal ownership with your spouse or your name doesn’t appear at all, that doesn’t mean you get nothing. Informal roles can play a part, too.
2. Informal roles
While formal business ownership rights matter during a divorce, it is well known that many family-owned and small businesses are sustained through the informal involvement of family and friends.
If you co-own a business with your partner or aren’t officially listed on any paperwork, your role may still be vital to business success. Some spouses contribute the original idea for a business model. Some provide unpaid bookkeeping services or cashier work. Others supply start-up funding or property. Some work a full-time job with health benefits to enable their spouse to experiment as an entrepreneur.
If you have an informal role in the business, take some time to write out your contributions in detail. If you hold a formal role in the business, consider how your spouse participates in the enterprise and keep that in mind as you decide what to ask for when it comes to business division.
3. Current state of the business
It is crucial to know the current financial and logistical state of your business during divorce and its valuation. If you have precise financial records and a reliable bookkeeping method, this may not require much effort. However, if most of the business information resides “in your head,” you have some information gathering to do.
Obvious financial markers are business revenue, profit, debts, and tax status. Other important components of your business model may include your number of employees, the provision of benefits, relationships with vendors or contractors, and the ownership or rental of property. Make sure this information is concise and collected in one place before you start to think about next steps.
Consider hiring a neutral business valuation service, too. At Haas Mediation, we often recommend that couples co-hire a valuator to help calculate the current worth of the business. This way both spouses trust the valuation of the business as they move forward with discussions about assets.
4. Future state of the business
With formal roles, informal roles, and the current state of your business and valuation in mind, it’s finally time to consider what you want the future state of the business to look like.
Ask yourself if you are prepared to run the business without the support of your spouse. Whether you are the one with the formal role or the informal role, both of you played a part. Be realistic about what it would take to go it alone.
If you co-own the business or both want to continue participating, that too requires careful thought. Is there a way to amicably continue to work together, or are the issues that led to your divorce going to spill over into your professional life?
The third alternative is for both of you to walk away from the business and equitably split the money you gain by selling it. It may be difficult to imagine your life without the business you built, but due to a variety of factors like children, location, or financial constraints, sometimes it is the best option.
Mediation can help
If all of this sounds difficult, that’s because it is. Here at Haas Mediation we have experience working with divorcing couples and business owners, and when those two overlap, we know how hard it can be.
Mediated divorce can be the best way to divide your business in an equitable manner, as it allows you to advocate for both formal and informal contributions in a way courts sometimes ignore. Additionally, the solution can be as unique as you and your spouse are - you’re not held to someone else’s idea of a fair outcome. You get to decide for yourselves what the outcome should be.
Schedule a free 15-minute consultation today so we can discuss how best to help you move forward during this difficult time. You are not alone in this process. We are here to help.
Interested in learning more?
- Andrew Haas, Founder & Principal Mediator
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