Marriage is a time to celebrate two people joining together in a bond of love. Divorce, a permanent separation of two people, is a difficult situation for anyone to navigate. What do these two life-altering decisions have in common? Risk.
When one or both of the marrying or divorcing parties is a business owner, the situation becomes increasingly more complex. Emotions naturally play a major role in deciding whether to get married or divorced. Unfortunately, many people don’t consider the practical, financial side of such choices before plowing right into the process. If those same parties have an ownership position in a company or practice, they expose themselves to unnecessary financial risks.
Essentially, when you join someone in marriage, you are connected to your spouse not only in a loving partnership, but also financially. When you disconnect from your spouse through divorce, you are likely still connected to them financially whether it be via alimony and child support payments or even them owning up to 50% of your business, depending on the circumstances.
Unfortunately, more than half of marriages end in divorce. And, subsequent marriages have a an even worse success rate. Considering how marriage and the potential dissolution of that marriage will affect your business is paramount to any current or potential business owner. Many people rush into the divorce process to “get it over with” before considering how this legal decision is going to affect the rest of their lives, including the life of their business.
Here are some items to consider to ensure that the beginning and/or end of your marriage doesn’t necessarily mean the end of your business:
- Get a pre-nup: Executing one doesn’t mean you don’t love your soon-to-be spouse. Quite the opposite, in fact. A well-executed pre-nuptial contract contains agreed upon guidelines with which both parties concur – causing less need for disagreement in the event of a divorce.
- Get a post-nup: If it’s too late for a pre-nup, this may be a viable course of action as a post-nuptial agreement provides for the division of property and spousal support in the event of divorce.
- Learn the difference between separate and marital property. This way, you’ll be equipped to make informed decisions in regards to assets you had prior and those you gain during the relationship.
- Make sure your business is set up properly to best protect your assets. Whether to arrange your business as a partnership, a limited liability corporation (LLC) or another type determines if/how your spouse can attempt to seek future financial gain from this entity.
- Know the value of your business. Having a general understanding of the value of all of your assets is key. And, your business is likely one of your biggest assets. Knowing its value is critical to ensure you understand if/what protection you need.
Carefully considering how marriage or divorce can affect the future of your business is something many business owners don’t think about until it’s too late. However, proactive thought about this issue is responsible, wise, and – in many cases – allows for a stronger relationship built on openness and honesty up front rather than unnecessary disagreements should the relationship dissolve.