Statistics show that roughly 39% of first-time marriages in America end in divorce. With such a sobering stat in mind, there’s a chance that divorce will affect you or someone you love at some point. If you are a small business owner, then the stakes are high if a business partner’s marriage is ending.
You may think that because you aren’t the one getting divorced, then you are free and clear. That’s not the case if you share business ownership interest with another party. The very life of your company – and your livelihood – could change based on what happens in the divorce.
It might be possible to stave off divorce-related woes from impacting your business. Careful planning in the form of business partnership agreements that have buyout clauses and limit transfers of stock or prenuptial/postnuptial agreements could prevent these issues from becoming a reality.
Business valuation and more
If your business isn’t lucky enough to have preexisting documentation regarding partner divorces, then you’ll need to take steps to minimize the damage a dissolution can cause. The first thing you’ll need to do is have a business valuation. This gives all involved parties the best and latest information about the profitability and status of the company. As part of this process, though, it’s important for all parties (partners and spouses included) to sign confidentiality agreements to protect business interests.
Once a valuation has been performed, there are some decisions to be made. Will the divorcing partner buy out his or her spouse in lieu of transferring stock or ownership interest? If there is a transfer, how will the company function with someone who may not have been involved in the company beforehand now calling some of the shots? Can a plan be put into place to minimize disruptions to day-to-day operations? Would it be worth it to simply buy out the divorcing partner in order to keep the business afloat?
The true impact
Obviously, this is a complicated issue, and it is vital to understand that your business partner’s divorce will have an impact on the company. The steps you take before and during their divorce could affect your business’ operations both now and in the future. It’s important to take the right steps to minimize the damage.