Going through a divorce is always difficult, but there is a lot more at stake for entrepreneurs. Your business—which you have poured your heart, soul, time, and money into the building—is suddenly at risk.
According to INC, entrepreneurs’ divorce rates are 5% to 10% higher compared to the rest of the population. Thus, protecting your business interests should be the number one priority for an entrepreneur undergoing a divorce.
Divorce will impact virtually every aspect of your company, from finances and operations to partnerships and staff. But with sage preparation, you can safeguard your entrepreneurial endeavor as you untangle a marriage.
This article will provide tips on minimizing divorce fallout on your business. With forethought and care, your company can successfully power through divorce and come out strong on the other side.
1. Seek legal counsel with expertise in business divorce
Your first critical move is finding a divorce attorney who really understands the intricacies of splitting up a business during separation. Not all divorce lawyers are well-versed in the complexities of divvying up assets and interests in an operating company. You need someone fluent in business valuations, partnership agreements, employee stock options, executive comp schemes, and other business-related issues.
Interview several attorneys experienced in dealing with business owners. You can check out several law firms, such as Shapiro Family Law, and ask targeted questions about their expertise around business interests.
Remember, this lawyer will be your right-hand business ally as you navigate the tricky path ahead. Finding the right legal counsel at the outset can set the tone for protecting your business through the divorce wringer.
2. Get financial records in order
Your divorce attorney needs a crystal-clear picture of your full financial situation to defend your interests properly. That means assembling personal and business tax returns, bank and credit card statements, loan documents, corporate bylaws, and more. Make copies of every financial record you can access, including digital files, and give your lawyer access to all of it.
According to Justia.com, some spouses may hide financial assets during divorce in an attempt to avoid sharing them with the other spouse. As tempting as it may be, don’t try to fudge numbers or hide money in the process. If you’re caught, the court will still require you to pay your ex’s share of the assets to them, and there may be other legal repercussions. Being as transparent as possible with your complete financial picture allows your attorney to build the strongest case for you.
3. Notify important parties promptly
Once divorce is on the table, notify key parties connected to your business quickly. This includes partners, investors, lenders, accountants, suppliers, contractors—anyone vital to operations.
Keep them in the loop about the situation without bashing your soon-to-be ex. Reassure partners, investors, and board members that business will carry on smoothly during the transition. Give your banker a courteous call that accounts access and signatures may change. Notify suppliers and contractors you rely on. The more you communicate upfront, the less potential for damaging rumors or surprises. It also signals all hands are still firmly on deck, steering your entrepreneurial ship ahead.
4. Create a business continuity plan
Get ahead of things by creating a detailed business continuity plan for how your company will operate through the divorce. Outline how you’ll cover critical functions, like staffing, customer service, supply chains, daily operations—the whole thing.
A rock-solid plan will give employees, customers, and vendors confidence that your business is protected and will stay the course during the turbulence. It enables you to say convincingly, ‘We’ve totally got this handled,’ when concerns arise. Proactive planning demonstrates that you’re steering your entrepreneurial ship smoothly despite the personal storms rocking your marriage.
5. Consult with a business valuator
Ensuring your business gets a fair, accurate valuation should be prioritized during divorce prep. So hire an independent, reputable business valuator to assess your company’s true market value. Don’t just rely on your soon-to-be ex’s proposed number. Provide them documentation on all business assets, equipment, inventory, IP, and goodwill to factor into the valuation.
Don’t lowball your business worth in hopes of smooth sailing. Get an objective appraisal of the fair market value and be ready to stand behind it. An accurate valuation will pay dividends down the road.
6. Review business loans and assets
It’s time to tally up exactly which business assets and loans are jointly in your name, your spouse’s name, or both. What business debts did you each secure independently? Who will retain ownership of real estate, equipment, intellectual property, or other assets tied to the business post-divorce? Tapping your attorney’s guidance is necessary when untangling commingled or co-owned assets, property, and debts accrued during the marriage.
Also, assess business credit cards, lines of credit, accounts, and where access may need to change. Like a proper business audit, take measure of all obligations and holdings to get a handle on what belongs where. Knowledge is power when dividing up those business fruits of shared matrimonial labor.
7. Check life insurance policies
Many married entrepreneurs overlook a key task: re-examining life insurance policies where your spouse is currently named as beneficiary. According to research, many divorced policyholders neglect to change beneficiaries after splitting up, which results in their ex-spouses inheriting their money by mistake.
So carefully review all life insurance documentation and make any needed changes. The same holds for retirement accounts, stocks gifted to a spouse, and other assets tied to your demise. This may seem morbid, but it’s necessary!
Takeaway
Going through a divorce can hit entrepreneurs hard, with your personal and business lives so intertwined. But with proper planning, you can lessen the blow to your company. So practice these tips and protect your interests while being fair wherever possible. With some thoughtful effort, your business can still thrive long after the marriage does not. You got this!
