Any entrepreneur will know that a new business requires long hours and a plenty of dedication to establish it and then maintain its momentum. When your business is your priority, it’s inevitable that there will be sacrifices made in other areas of your life.
Unfortunately, for some this could stretch a marriage to its breaking point and the time may come where a business owner starts to think about preserving their assets. If this sounds familiar, we have a few tips on how to best navigate an agreement with your spouse during a divorce, whilst also safeguarding your business.
Get a Fair Valuation
Make sure you use a neutral valuation professional, preferably one that has been court-appointed. Then, arrange for another party to review this figure before you agree to it. It is always best to make sure this valuation is correct, and you certainly shouldn’t be afraid to challenge it. They could base the value on figures based on future growth rather than current revenue, which could leave you massively out of pocket.
Look at Prior Business Agreements
Your business can be protected with a pre-nup or a post-nup as you can designate it as separate asset that's owned solely by yourself. A pre-nup is agreed and signed before a wedding and a post-nup afterwards. The latter is perhaps viewed more sceptically, but if it is introduced long before a marriage has frayed, then it could be an important document that protects your business asset.
Another option is a buy-sell agreement, which defines what happens to a business if the owner’s status changes, like in a divorce, and it can limit a spouse’s ability to acquire ownership. Also, if your business is placed in a trust it means you no longer personally own it, so it can’t be divided up as a marital asset.
Dividing Your Personal Assets
If you have kept your family finances separate from the business’ accounts and have maintained good records for both, it will be easier to divide your personal assets.
However, regardless of whether your ex has a stake in the business, it could still be considered as a joint marital asset. In America, there are eight states that follow community property law, which states that any income, property or debt is considered the married couple’s joint property. This, of course, makes it complicated to even define your personal assets, never mind divide them. We advise speaking to a divorce lawyer to advise you on the best course of action in this case.
Raise Capital by Selling a Stake
If it comes to buying your ex-spouse out and you have to raise funds to do this, you could consider selling a minority stake in your business. There are many different options here – you could introduce an employee stock ownership plan or find an investor who will pay in cash for an ownership stake.
This may not be the ideal option for a business that you have put your heart and soul into, but it would mean a clean break without your business suffering from the effects of your divorce.
If the sad time comes to divide your assets in a divorce, you’ll be keen to reach a financial agreement with your ex-spouse without compromising your business. Of course, hindsight is a wonderful thing and you may wish you had prior agreements in place about the fate of your business, but it’s not impossible to make a clean break. Employ a divorce lawyer to advise you and you'll be able to look ahead to your new start…
