Wealth & Finance International
The Effects of Divorce on Business Going into business with your significant other is increasingly common and can be a hugely positive experience – helping to strengthen personal relationships and create a solid foundation from which a business can thrive.
hese partnerships though could only work when there is an abundance of trust, like-minded thinking and honesty. At least this is what I have found in my own personal experience working along side my husband at my company A City Law Firm. When it comes to our working relationship we have very clearly defined roles that allow us to employ our own skills without stepping on each other’s toes. I’m the MD, he’s the Practice Manager and family time, is a ‘no-work-zone’, completely dedicated to our son.
situation where you have to buy out your business partner. Many businesses don’t have the free capital for this and it could be the beginning of the end.
Despite running an accomplished business together and being happy in our marriage, I am acutely aware that things can go wrong and have often found myself in the middle of a messy business dispute between spouses. Divorce does happen and for couples who are also in business together the impact can be detrimental and far reaching
Tip2: Pre and Post Nups
Several months ago, I dealt with a client who had no legal documentation and the business could not afford to buy the partner out. The couple were forced to work alongside each other for 18 months before they could afford a clean break which caused enormous friction, staffing issues and terrible disruption to the business.
In addition to the founder’s agreement, I would suggest getting a Pre or Post-nuptial agreement in place as it can be very persuasive during divorce proceedings. Also ensure your Will mirrors these documents too because in the event of your death, it governs where your shares or their cash value go and how this will be distributed. This is really important, especially if you have children together.
Over the years, I have dealt with hundreds of couples who have gone into business together without suitable legal protection because they felt the usual protection was not required of people in love. Having THAT conversation is not easy or romantic, but it’s certainly very necessary.
Tip 3: Be Wary of Dirty Tactics
If your marriage fails, it can have a serious impact on your business so how can you protect yourself and the business from the effects of divorce?
When your relationship has broken down and emotions are involved, it is hard to make logical and rational business decisions. Over the years’ I have witnessed some questionable tactics from owners trying to protect their businesses - hiding assets, selling them at an undervalue and even delaying account preparation. Sometimes partners will even gift assets away ahead of anticipated divorce proceedings to spite the other party and reduce the overall value and share of the company.
Tip 1: Documentation, Documentation, Documentation Every business with more than one owner should have a founder’s agreement in place. For married couples this is crucial and I cannot stress this enough. When you’re happy in your relationship and everything is running smoothly, the idea of what is seen as a ‘business pre-nup’ seems unnecessary and probably quite awkward to discuss but please consider this; without legal documentation, if it goes terribly wrong you could be leaving it to a court to decide on the ‘fair’ division of your assets.
While the family court can put injunctions in place or reverse transactions, it is costly and emotionally destructive for you at an already distressing time.
When it comes to divorce, many entrepreneurs (men and women) often don’t realise that their partner may be entitled to a 50:50 split of their company – even if through all your sweat and tears they haven’t been really involved at all. The longer you are in your marriage ; children or the financial resource disparity, the more likely this becomes.
As a solicitor and fellow entrepreneur, I urge all spouse partnerships to address this as a priority. I know what it’s like to build a business from scratch and it would be devastating to have it all taken away for the sake of a simple document.
Tip 4: Puff out your chest and have THAT chat now
If it’s not too late, get a founder’s agreement (Shareholder’s agreement for companies) drawn up to cover the following points: - Transfer of all IP to the company
The equal division is frequently the starting point for family proceedings and unless you can prove why it is unfair, you may be forced into a