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If you and your spouse own a business together, or if one of you owns a business you started during the marriage, what happens to that company when you decide to divorce? If you’ve been running it together, are you confident you could continue to do that after the divorce without undue strife? Or do you think it might be more prudent for one of you to sell your interest to the other?
We have seen divorcing couples make each of these scenarios work. It’s a very personal, very weighty decision. Your company is a marital asset — for many couples, the largest asset to be divided. As such, it deserves careful thought as you enter into divorce negotiations. Here are some considerations you may want to take into account as you decide what to do with your business:
The condition and strength of your relationship. If your divorce is amicable, and you expect your relationship to remain positive and strong, it may make sense to keep your business just as it is. On the other hand, if friendliness and civility are things of the past, you need to consider whether you could work collaboratively going forward. Some couples opt to restructure the business so they don’t have to interact directly with the other party.The potential impacts of your decision on employees.
Whether cash flow is sufficient for one spouse to buy out the other’s interest. If not, you may be able to negotiate a long-term, deferred payout schedule. However, if both parties aren’t open to this, or if it creates too much of a financial burden on one or both parties, then you may end up needing to sell the business even though that’s not your preference.
What role each party has played in the company’s success. If each of you has held a position of influence in the company, and your contributions are equally integral to its success, it might not be feasible for one or the other of you to buy out the other’s interest.
Whether you’re both making the decision to sell or keep for the right reasons. Sometimes when divorces turn ugly, spouses make decisions out of spite, taking whichever side they believe will cause their ex-spouse the most pain. Good seldom comes of this motive.
If one of you buys the other out, here are some considerations:
- What’s the value of the business? The best way to ensure a transaction that’s fair to both sides is to bring in a broker or other valuation expert to conduct an objective assessment.
- Do you need a non-compete agreement? Depending on the nature of your business, you may want to have a non-compete agreement drawn up. Should the person leaving the business decide to start a company that’s similar in nature, they should not be allowed to poach established clients.
If you decide to dissolve the business, ask yourselves these questions:
- What’s the ideal timeline for selling? Since this is an asset to be divided, it’s in the best interest of you both to sell at a time that enables you to maximize profit. However, if cash flow is a concern, you may not have the flexibility to hold out for that opportune moment.
- What offers will you consider? Establish a minimum offer that is mutually acceptable, so that one person isn’t entertaining offers that the other won’t consider.
- What are the terms? Be sure to have a corporate lawyer help you negotiate the terms of the dissolution to ensure that you’ve covered all the bases and that no liabilities are triggered. As part of this, discuss whether a non-compete clause should be added.
If you decide to keep the business — together — discuss these areas:
- Will your level of interest in the business change as a result of your divorce negotiations? Depending on how your division of assets shakes out, you may be taking on a larger or smaller percentage of ownership. It’s important to discuss whether that changes your role, voting rights, decision-making authority, etc.
- Will you change the manner in which you interact with each other? As mentioned above, if it’s tough for you to get along post-divorce, it’s probably best to establish some boundaries and maybe some new processes for getting things done. Still getting along great? Then go for it! Keep working as you always have, hopefully with much success.
May 16, 2019 at 11:26AM
Forbes – Entrepreneurs