Divorce-Proof Your Business
Having to continue business even after divorce with your ex-spouse (then business partner) can happen to even the best entrepreneurs. As a new business owner is investing his precious hours in building the foundation of a business, a marriage can fall apart. During such a time, the next thing the owner knows is that his spouse might be filing for divorce. This is a pretty common scenario as 40-50% of all first marriages in America end up in a divorce. In fact, the divorce rates for second marriages are much higher.
If your marriage has headed towards a breakup and your company is still underway, what are the strategies that you should take in order to retain your joint asset without any issues? Read on.
#1: Maintain proper records and keep family finances separate
While you’re on the verge of a divorce, make sure you never make the mistake of borrowing money from the house account for purchasing trucks for your business.
#2: Schedule a good salary for yourself
If you starve the cash flow of the family to build the foundation of your business, later on, a lawyer may say that your ex-spouse is entitled to a majority of the assets of your company. Hence, divorce lawyers always recommend such business partners to assign a good amount of salary for themselves.
#3: Chuck your spouse from the company
Is your spouse involved in your business? If answered yes, you should chuck him/her out of the company as soon as you can. The more involved your spouse is in the business or the longer the person has worked in your business, the stronger will be the case when you fight the divorce case with the help of the lawyer. The lawyer may later on say that since the spouse helped in building the business, he/she should be given a share of the profit from the growth.
#4: Compromise on other assets
As long as a divorce settlement is concerned, the total assets of the couple are added and then they’re divided. As per the rules set by the lawyer, you should try to retain 100% ownership of the business by compromising on several other assets like family’s home, retirement accounts, collectibles, and vehicles.
#5: Obtain a fair valuation
When obtaining a valuation of the property, use a court-appointed, neutral valuation expert and then make way for a third-party to review the figure on which you have already agreed. Try to know whether the valuation is based on the projection of 10 years of future growth or on the present revenue.
#6: Sell a stake and raise capital
How about selling a stake to the employees via an employee stock ownership plan and raise capital? You could even watch out for angel investors who could pay cash in lieu of the ownership stake.