If only your entrepreneurial savvy can guarantee the success of your marriage. As it is, a lot of successful entrepreneurs find themselves suddenly facing divorce just when their company is beginning to take off. The worst part is that they haven’t established ways to protect their business from taking a hit in this personal affair. While it can be unpleasant to consider, experts suggest that business owners reflect on how divorce will impact their company. After all, it won’t help to manage a struggling enterprise when you’re dealing with a fraying marriage.
Regardless if you’re facing the prospect of divorce, simply heeding expert advice, or are just about to get married, there are steps you can take to guarantee that you never lose ownership of your company.
Maintain Financial Separation
Here is where a lot of entrepreneurs fail on the get-go. It might have been admissible to mix your personal funds with your business funds when you’re just starting. However, after you’ve successfully launched, it’s integral that you maintain financial separation between the two.
Even when hard times hit, don’t use your kid’s college fund, your spouse’s savings, or your joint account for your business needs. It’s not only detrimental if you get a divorce; it’s an overall bad move to compromise the financial security of your spouse, your children, and yourself. In light of a divorce, this will reflect poorly on your skills as an entrepreneur and your sense of accountability as a parent or spouse.
Give Yourself a Salary
It doesn’t matter who you ask. Family attorneys and veteran businessmen alike will vouch for the benefits of giving yourself a salary from the moment your business starts. Ensure that it’s documented, even if you end up funneling the amount back to the company (although this, too, should be avoided when possible). This is one way you can refrain from touching your family’s savings account.
Also, getting a sizable income from your company to get the funds for things like your retirement is better than sourcing it from your company’s sale. This will give your spouse a valid reason to demand that she gets her part of the company when your retirement plans together are doomed.
Rethink Doing Business Together
It sounds like an ideal plan for most married couples to start and grow a business together. From a divorce’s perspective, however, this is a nightmare. The more prominent your spouse’s role in the company, the higher their chances of getting a foothold during the divorce proceedings. If the business is your brainchild and you just eased your spouse into participating, then you could consider slowly pulling them out to focus on their own thing. Are you officially business partners? In this case, they already have a legal right to your business no matter what you do.
The key for entrepreneurs who are just starting is to reconsider doing business with their spouses altogether. Many experts would attest that personal compatibility does not always guarantee professional compatibility.
Don’t Underestimate Prenups and Postnups
It could be that you started your business before you married. In this case, a prenup and a postnup will legally define the business as something you own as an individual.
Take Advantage of a Trust
When you place your company in a trust, the business stops being a personal possession of yours. Therefore, it can no longer be counted as a marital asset. Many people do this to protect their company’s value as it grows. It’s also a good way to keep your business from being forced out of your grasp in a divorce.
Consider Buy-Sell Agreements
This is a good alternative to prenups and postnups. A buy-sell agreement clearly states how a change in your status affects your business. A divorce is counted among those, and a clause under it can give you the leverage you need if your spouse tries to acquire ownership of the business. Some possibilities include removing their right to vote and giving yourself the right to buy your spouse’s shares in the company at low costs.
Invest in Quality Insurance
Check if your insurance policy accumulates cash value. If it does, then you can have it liquidated to amplify your funds. With a considerable sum you can dispose of, it becomes easier to buy your spouse’s business shares. This is often the last resort for some people, but it’s always a good option to have. Check your insurance policy to see if this is possible for you just in case.
Good Entrepreneurs Prepare for the Worst
It doesn’t make you a bad spouse when you take measures to protect your business against the effects of divorce. Taking these actions may even motivate you to start fine-tuning your business to withstand whatever professional and personal crisis that comes your way.