There are several different things you should do to protect your business during divorce. When a couple decides to tie the knot, discussing divorce and its possible effects to each person both emotionally and financially are rarely discussed.
It’s absurd to think about breaking up when two people are preparing to get married, but it’s still an absolute necessity —especially for entrepreneurs.
Moreover, many first-time marriages neglect pre-nuptial agreements, assuming that their marriage will last their lifetime. It’s romantic, but not rational. Almost half of all first marriages in the U.S. end up in divorce.
In the unfortunate event that you find yourself in family court and financially uncertain about the effects of divorce on your business, there are some things you should know.
How to Protect Your Business During Divorce
1. Find a neutral valuation professional.
Divorce often puts people in a great deal of emotional and financial stress. This stress may make it difficult to understand how divorce affects a business. It may seem easier to just agree on everything to avoid conflict, but that is never a wise decision.
Among the common things that many divorcees forget is to challenge the valuation of their business. It is common for court-appointed valuation professionals to base a business’s value on its 10-year projection of growth or revenue.
This valuation will determine how much you are going to have to pay your ex to buy out his or her business share. This is why it is extremely important for an entrepreneur to have their valuation double-checked by a neutral third party organization to ensure the accuracy and fairness of the valuation given by the court.
If you have business abroad, like Europe for example, you can connect with trusted PEOs (Professional Employment Organizations) like www.bradfordjacobs.com to help you find a neutral third-party business valuation professional.
2. Buy out your ex’s share.
After agreeing on your business’s valuation, you can then proceed on to buying out your ex’s shares. It may sound like a lot of money you can’t afford, but there are many ways to help raise capital to do it.
One common option is to sell a minority stake in your business. You can sell ownership stakes to your employees (through stock ownership) or you can get funded by angel investors who are willing to pay you cash. Don’t get frustrated if it doesn’t work out fast — it may take time but it will provide you with enough money to keep your business fueled.
You can use this money to buy out your ex’s share through payment arrangements as you wait for your bank loan or while you wait for your business’s cash flow to be stable.
3. Forfeit other assets in exchange for your business
Another way to protect your business during divorce and get enough funds to pay off your ex’s share is to trade off other assets to get full ownership of the business. You can use equipment, corporate stocks, high-value arts (like paintings), antiques, and other investments you are willing to let go.
4. Remove him/her from any business involvement.
Divorce can take an emotional toll on people, and when this happens, you put your business’s leadership at stake. If you think your marriage is headed towards divorce, it’s best to remove any involvement of your spouse from the company no matter how insignificant it may seem to you.
The amount of time your spouse spends helping to build your company can be used by his/her lawyer to justify his/her shares from the company’s profits. Just fire him/her to avoid more conflicts.
5. Build your own personal assets.
If you know your marriage is headed towards an ugly breakup, you will need to raise enough personal funds to pay your ex a large lump sum of money and/or monthly payments over many years to have full ownership of the business.
Do take note that you should not take money from your family accounts to fund you or your business’s needs. If you use your family’s finances to build your business a lawyer can use this as a basis for giving your ex more entitlement to the business.
The challenge to prove that your business was never financed by your family’s bank accounts or cash flow can be overcome if you have a good record that proves your business’s and family’s finances are separate.
If you have no other means of income, you can raise capital by paying yourself a higher salary. You can also do jobs on the side and take consultancy jobs or other freelance jobs that will earn you money faster. To protect your business during divorce, you will have to take all of these things into consideration.
Andrew Walker is a senior manager at Brandfordjacobs.com, with extensive experience in global expansion strategies. He has undertaken senior management roles at a range of multinational companies across the UK, where he was head of business strategies. Prior to his current role, Andrew was chief operating officer for a payroll service company specializing in outsourced services to Europe.