How to Keep Your Head and Your Business in a Divorce

Getting divorced is never easy but the task is made even more difficult when there is a business involved.  Not only is the matter of who will own the business up to the courts, there is also the need to keep the business operating smoothly during and after divorce proceedings.

This can be a daunting challenge for many small business owners as the time required to navigate divorce proceedings often makes it impossible to properly manage a small business.  But it doesn’t need to be this way and here are some ideas on how to keep your head and your business in a divorce.

When it comes to divorce and business, the worst case is liquidation.  While there are times when this can’t be avoided, it doesn’t need to be this way as there are several strategies which can be pursued to lessen the blow to both partners and make sure the business is on solid footing going forward.

The first thing to keep in mind when a business is involved in a divorce is that it is not the same as fighting over child custody.   While family law is well suited to decide the issue of custody, the complexities of contract law make it the wrong venue to decide who should own and control a business.

One strategy is to treat a business a separate entity from the marriage.  While this might seem counterintuitive after all, marriage is meant to be forever, divorce proofing the ownership structure of a business is a good first step.

In doing so, you will want to outline all aspects of the business’ management and ownership structure with your spouse.  Make sure you get it all down on paper as this will leave little room for ambiguity in the future.  Don’t forget to add a provision for one partner to buy out the other partner as this will provide a road map if the divorce is so bad that the couple can no longer work together.

While this solution could burden the ownership with needing to come up with a lump sum payout, it should be viewed as a starting point.   The next step is to finalize the valuation of the company and while this can be a sticking point – especially when the divorce is hard fought – using a third-party appraisal can help bring the two sides together on a final number.

Well, this works if the funds are available to finalize the buyout.  But what if money isn’t available?  One approach is to have a permanent life insurance policy in place.  In this way, the policy can be used to secure the buyout, thus saving the remaining spouse and the company from the stresses of needing to finance the buyout.

Great, so you have a partnership agreement in place and both partners have a life insurance policy to help to cover the cost of a buyout if there is a split.  But what if no such plan is in place?

Unfortunately, this is the situation in far too many divorces involving a business.  A few best practices include: (a) remain calm, (b) opt for third party mediation, (c) use an outside valuation expert, (d) don’t expect to get everything you want.

Remember, it takes two sides tango.  While you will have your goal for what you want to get out of the business following the divorce, so will your partner.  If this ends up being your situation, then you also want to remember to make sure that the final settlement includes a non-compete clause as this will help to ensure that your former spouse does not become your competitor in business – at least not immediately.

That being said, not every divorce means that the couple needs to tear up the business they have built from scratch.  In some cases, it turns out to be easier to work together than it is to live together.

However, a big part of this is included redefining the basis for trust and respect.  This means looking at which roles best suit the strengths of each partner.  In this way, each partner can focus on what they do best.  Assuming the relationship isn’t damaged to the point where such an agreement can’t work, then this could prove to be the cheapest and easiest way to keep your head and your business in a divorce.