Author: Sheela Mackintosh-Stewart, Matrimonial Consultant, Relationship Guru and Founder, iFamiliesuk.com Consultancy
9 Sep 2019
Nobody wants to think about divorce – it’s a major life change, especially if you also have a business together. But the harsh reality is that 42 percent of marriages break down, which makes divorce a very common, albeit unpleasant, process. It’s therefore important to take the necessary steps to divorce-proof your business at the outset if you are planning to build a company with your spouse.
In the past decade, more couples than ever before have made the decision to go into business together, with many failing to anticipate that their marriage may not work out. By becoming ‘couple-preneurs’ (couples going into business together), married partnerships face greater risks, as they could experience the emotional pain of losing their relationship at the same time as damaging the business both parties have put hard work into.
Hence, couples entering a business together should consider the possibility of a divorce in the future, and take all the necessary steps to protect themselves and their business interests. Many fail to do so and, when the marriage breaks down, often engage in bitter fights and petty behaviour, such as preventing the business from being sold or raising cash to buy the other partner out of the company.
With this in mind, here are some must do’s for couples starting a business together:
Build a strong marital foundation first
Going into business is never rosy, and doing it with your spouse can either enhance your marriage or be an unfolding nightmare, as you spend 24/7 together with no separation between your private life and the running of your business. It is highly stressful, often leaving you feeling exhausted with little time and energy left over for each other.
Learning to be comfortable and respectful in disagreement is essential; you won’t agree on everything, so be sure to develop and master effective conflict resolution with each other
Building a strong marriage foundation that can withstand these pressures is vital so this balance can be maintained. The future success of your marriage and business often depends on maintaining a healthy and harmonious relationship in the home and in the business.
A strong marriage means taking the time to step back and identify what’s working well and what issues are holding you both back, so you can move forward together.
Develop healthy communication skills
Running a business is demanding – you are constantly dealing with problems and moving parts – therefore the communication you have with each other must be regular, honest, proactive, open and productive. While doing this, don’t avoid difficult conversations about areas where you are likely to come into conflict, such as control, boundaries, decision-making and disagreements.
Learning to be comfortable and respectful in disagreement is essential; you won’t agree on everything, so be sure to develop and master effective conflict resolution with one another. Identify problems and then actively listen to your partner’s opinions, which will allow you to compromise and resolve issues together. A great tool is making it a habit once a day to check in with each other. This provides an opportunity to keep up to date on each other’s progress and align your current priorities and expectations.
Legalise your business arrangement
To provide clarity, certainty and peace of mind, it is wise to put all the details of your business partnership into writing and create a business agreement. Creating a shareholder agreement or a partnership agreement will protect your business interests and shareholdings in the event of a future divorce. Agreements should include each party’s respective capital and asset contributions to the business, vision, role expectations, objectives, distribution of profits, rewards, exit strategies (if one chooses to leave early), resolution of business disputes and how business finances will be distributed in death, dissolution or divorce. It should also include restrictive clauses preventing you or your spouse from taking clients, sharing confidential information or setting up a new business as a direct competitor.
These agreements are also important documents for overcoming issues of trust and control in your business. Many entrepreneurs struggle trusting their spouse to fulfil responsibilities in the way they see fit. Also, founder partners can find it difficult to relinquish power to the other, and trust can be totally destroyed when one partner is betrayed. Written agreements can manage and resolve uncertainties and establishes where both of you stand in the business.
Separate your personal and business finances
Most spouses share everything, including their finances. However, it is advisable not to do so when running a business together. As tempting as it may be to pay for the company’s first phone on your personal credit card, this should be avoided, as it can complicate your tax affairs and make untangling the financial mess even worse if you later end up in the divorce courts and have to separate your culpability from one another.
It is an absolute necessity to maintain accurate records – if you don’t treat your personal and business finances as separate entities, the law won’t either.
Draw up a pre or postnuptial agreement
Entered into before or during a marriage, these contracts address how marital assets, including business shareholding and assets, can be ringfenced and divided on divorce. Such agreements are not codified by any legislation, so there is no guarantee of their application or protection they offer. However, a well-drafted prenuptial or postnuptial agreement that follow the necessary legal guidelines are highly recommended, as they provide some certainty while keeping costs and legal disagreements to a minimum upon divorce.
It’s never easy thinking about the worst-case scenario or broaching the subject of a divorce when in a happy relationship, but it is always wise to cover all bases given there is no certainty of a successful marriage or business relationship. Remember, failure to prepare can often be preparing to fail.