By John Schaefer, Esq.
The Law Firm of John F. Schaefer
There are more than a million husband and wife-run businesses in the United States. There are also close to 900,000 divorces filed every year in our nation.
When a marriage dissolves when a jointly-run business is involved, there are a limited amount of options available and all come with their own complications. One, the business can be sold; two, one of the partners can buy out the other; or three, they can continue to run the business together.
What at first blush might seem the simplest solutions — to sell or buy the spouse out — have their inherent disadvantages. Selling a business rarely produces enough money to make up for the lack of revenue. Buying out your business/ex-marital partner can be tricky as well. How do you monetize his or her interest in the business? For example, if a valuation is conducted and the valuator believes your business is worth $10 million, and it’s agreed you are both entitled to 50 percent, how will that be paid? Is a lump sum possible? If not, how many payments will he or she receive? How will the faithful performance of payments be secured?
Staying in business together is the third option, and though it may seem an incredibly uncomfortable choice, it can be a workable solution with some care taken. I have seen these arrangements work surprisingly well. In fact, I just completed a recent case where this is the agreement and it’s working very well indeed.
For those who think this is the best solution for their jointly-run business, I found through my experiences that are some caveats to ensure an agreeable, comfortable arrangement agreeable for both parties:
- Recognition. It is important that both parties recognize and respect that each partner brought a valuable skill to the business and that those skills are still valuable and will continue to benefit the business going forward.
- Defined roles are a must. The formerly married partners should not be managing the same things and attending the same meetings. If one is in sales and the other responsible for internal operations, that is workable. If both are managing day-to-day operations, maybe not. • Grow up. There are certain behavioral traits that help this work. The dissolution of a marriage tends to bring out the worst in people, so if the partners can gain more maturity than from when they were crashing, that certainly helps. Conciliation and compromise is key. Professionalism means keeping your personal life out of the business partnership.
- No third wheel. Lastly, this works best if one of the ex-spouses doesn’t have someone waiting in the wings. In my experience, when that is injected into the mix it becomes problematic and introduces an anger factor which impedes the ability to run the business smoothly.
Staying business partners after the marriage partnership dissolves can work and it does work. Structure is incredibly important, as is the recognition that the business’s ongoing success is the result of both partners’ hard work and skills and that those skills are invaluable to its future health.