Divorce is a stressful time for anyone who has experienced it. But for those couples that also conduct business together, divorce can really get messy, especially when they are in the midst of starting a new business venture.
Is the business up for grabs?
If you are considering divorce, but are also a business owner in the process of starting up a new venture, you need to stop and look back at any agreements you have with your spouse.
- Do you have a prenuptial or postnuptial agreement that spells out the terms of property ownership?
- Do you have a shareholder or partnership agreement that controls how the business is run or split up in the event of one partner leaving the enterprise? How will voting rights be impacted, if at all?
- Do you have a buy-sell agreement?
- How was your startup funded? Did you use joint funds or assets to do so? Did you take out a mortgage on property to fund the operation?
These are important questions, because Florida is an equitable distribution state, therefore, any assets you and your spouse obtained during the course of the marriage are considered to be jointly owned by both. Assets prior to marriage are generally not included, but could be in circumstances where funds were commingled and treated as jointly owned during the course of the marriage.
The judge has discretion to decide how marital property is divided. Property may be allocated to you both in ways that are not necessarily equal (meaning a 50:50 split) but rather divided equitably based on the specific circumstances of the marriage and divorce.
Valuation will be the focus
Depending on where you and your spouse are at in the startup process, profits may be nonexistent, or just starting to trickle back to the enterprise. If you have a buy-sell agreement, partnership or shareholder agreement in place, then the division of the business from an equity standpoint will likely be controlled by that. However, valuing the assets of the company, including any human capital that your spouse contributed will need to be examined in order to unwind you and your spouse from the business. Historical revenues may not reflect current value, so be prepared to debate the worth of the business and its future earning potential during the divorce process.
Consider other collateral damage
Often times, divorcing business partners encounter collateral consequences as a result of the split. It is important to contemplate potential changes and keep your business afloat during the change. How will one partner’s exit change business operations? Will you need to hire a new employee to fill their shoes if your spouse decides to exit management or other duties they have assumed? What if your spouse does not want to leave the business?
Additionally, for those people who do have employees working for them, remember that divorcing business owners create stress for workers too. If they have worked closely with you both, their loyalties may be strained during this time. It is important to shield them from any details about the split, and to keep your discussions focused on business matters.