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Planning for the Possibility of Divorce When Forming a Business with a Spouse

Planning for the Possibility of Divorce When Forming a Business with a Spouse

It may seem unromantic to plan for the worst, but, like most unromantic things, it’s extremely practical. Forming a business with a spouse can be an incredible, invigorating experience; but it can also be stressful, fraying, and destructive to any relationship. It’s good to know all that going into it, and know that your business is capable of weathering that storm if it comes. Here are some tips for forming a business with your spouse that will protect you both — and your joint venture — in case of divorce.

 

  1. Be Meticulous With Your Bookkeeping: Keep excellent, detailed business records, even when you’re just starting out. If you do file for divorce, those records will help you get an accurate valuation of your business, as well as an accurate split of assets and ownership. Importantly, work hard to keep your family’s finances separate from your business finances. Try not to borrow money from your family accounts to finance parts of your business. Doing so will make separating your finances down the line much more difficult.
  2. Plan For Retirement Without The Company: Selling your by-then successful business and retiring from the proceeds may seem like an attractive life plan, but it’s not a reliable one. Just as one doesn’t plan for divorce, one doesn’t plan for the dissolution or split of their company. Even if you do sell, as co-founders, you and your spouse will both be entitled to a share of the sale, separately. Instead of planning on a joint retirement, invest in separate retirement accounts that are not tied to your co-owned company.
  3. Pay Yourselves: From the get-go, try to pay yourselves livable, fair salaries. As co-founders of a company, it can seem like an easy decision to sacrifice your wages to keep money in the business, but if you choose to divorce later on, dividing assets will be much more complicated, especially if one of you sacrificed wages and the other didn’t. If one of you is sacrificing your family’s income to build the business, it may be argued later on that the other is entitled to more of the company’s assets.
  4. Make A Prenup: If you form your business before you get married, write a prenuptial agreement together that designates the business as a co-owned property. Be specific about your ownership percentages, and write a protocol for splitting ownership (will one have to buy out the other, etc.).
  5. Make A Postnup: A postnup is like a prenup, but it’s signed after a wedding. Say you’re already married and you’ve decided to co-found a business — this agreement acts like a prenup and can be a useful, guiding document in the the case of divorce. Postnups are not as common as prenups, but they are still a useful way to have that conversation with your spouse and plan for the possibility of divorce.
  6. Write A Buy-Sell Agreement: Like a prenup, a buy-sell Agreement can help lay out what exactly would happen to your business if there is a change in ownership or structure. The agreement can be tailored to your business, but should go into detail about how one spouse may buy the other out (and how), the limits of your ownership, your voting rights post-divorce, etc.
  7. Put Your Business In A Trust: Placing your business in a trust removes it from your marital assets and makes it so you and your spouse no longer personally own the business. In the case of divorce, this protects the company’s value and growth through a time of transition.

These seven tips are not exhaustive, but they are great first steps in safeguarding your investments of time and money in a joint business venture. If you are considering starting a business with your spouse or soon-to-be spouse, think about talking with a family-law attorney who has experience with collaborative divorce. Because of their collaborative approach, these specially trained attorneys are the ideal choice for working with couples to create a prenup or postnup agreement. They can help clarify expectations and establish protocols to help reduce the likelihood of problems that could later lead to divorce and damage to the business venture.

2016-12-05T15:19:48+00:00 November 16th, 2016|Spouses in Business Together|Comments Off on Planning for the Possibility of Divorce When Forming a Business with a Spouse