When couples are happily married, few think about the potential consequences if the relationship ends in a divorce. But even the happiest of spouses should consider taking realistic steps to protect their future financial well-being.
That’s especially true for high-net-worth couples when one or both own a business. The survival and success of the company, as well as the livelihoods of their employees, may be at stake. How can divorce potentially affect a business’s long-term success?
- Disrupting daily operations: Meeting with a lawyer, attending court dates and dealing with correspondence over your divorce can divert your attention away from management duties.
- Impact on partners and employees: If your business will be divided as part of the divorce decree, how will you pay your spouse? Shares of stock or a percentage in the company? If your spouse already has a significant role, will that put employees in the middle of the dispute?
- Survival of the business: If your spouse receives a cash payout for their share, do you have enough liquidity, or will you need to sell the business to come up with the funds?
Steps you can take to avoid disruptions
The most effective way to protect a business from divorce is to have a valid prenuptial or postnuptial agreement in place. If no such document exists, owners can still protect their company from divorce impacts by:
- Keeping personal and business expenses separate
- Documenting all cash transactions
- Paying yourself a fair market salary
- Paying your spouse a fair market salary if they work at the company
- Keeping detailed records of all business capital and whether they were marital or premarital funds
Don’t mix divorce with business
Finally, in addition to working with a family law attorney who understands how complicated assets are equitably divided, keep these thoughts in mind for avoiding disruptions at the office. Create a separate folder on your computer for divorce-related items, use only your personal email for divorce business, and don’t discuss your personal life with business partners or employees.
Also, rigorously schedule all divorce matters for specific times during the day, such as a lunch hour to talk to your lawyer or complete correspondence. Additionally, reduce the burden on human resources and others by making as few requests as possible for documents you need for the divorce.