Divorce is difficult, no matter what. When the divorce can affect the survival of a family business, it can be even more emotional.
Nearly 40 percent of first marriages end in divorce and 60 percent of second marriages end in divorce. When we consider that small family businesses make up 80 to 90 percent of all businesses in America, the repercussions are enormous. It has been said that when marriages fail, so do family businesses. However, this does not have to be the case.
We should all try and remember the age-old idiom, business is business. No matter how complicated a divorce is, each party owes it to him or herself — and to their children — to remember this.
Here are some ways to keep your family business going strong in the face of a divorce:
Define your roles
You had a role before the divorce, so why can’t you have one after? Having a particular role helps bring different values and skills to the company and eases areas of conflict. Look into what your former partner is good at and recall what you excel in. Try to make your company the strongest it can be no matter the circumstance. Defining your role will help you create a boundary so your significant other doesn’t overstep.
Although you may have the urge to scream or cry in front of or at your former partner, this is not the place to do so. Divorce can be fraught with emotion but being emotional while at work is not professional.
If you were a good parent, you kept your kids in the dark about your difficulties. Then why can’t you keep your customers out of the emotion as well? Your customers, vendors or business associates are not your therapists or your lawyer — do not speak about your troubles with them. If you burden them with your problems, doing business with you just becomes harder and they will go elsewhere. And opening up the conversation with employees, customers or vendors only serves to make them choose sides. Remember, they just want to buy your product.
Set ground rules while at work
It can be awkward working with your former significant other when you’re fighting, going through a divorce or after you are divorced. Ground rules can help set guidelines for what is and isn’t allowed in a professional work setting. They help lay the groundwork for a healthy relationship.
If you run the type of business where you can each work on different days or in separate offices and that is what you need to do, then do it. The ground rules will be different for each type of business and what they are is not as important as having them to begin with. Define your roles and stick to them.
Creating an agreement
Not only should you set ground rules with your significant other, but also create an agreement making sure both parties understand what has been decided. Define what each partner brings to the table. Define who gets paid what as well as how decisions get made.
You also need to decide what happens to ownership interest. You should both come out of the conversation knowing your economic rights.
More often than not, family businesses are not formalized with shareholders’ agreement or operating agreements. If your family business does not have one, see a lawyer immediately and have one drafted.
Remember, this should be much simpler than the overall agreement you make concerning all of the marital property. A simple shareholders’ agreement setting forth the time each party is expecting to dedicate to the business, the compensation he or she will receive and specific matters concerning each party’s role is all you need.
Overall concerns in divorce
Generally speaking, once two parties divorce, only one can retain the business. The other will receive what’s known as a distributive award, which is a sum of money to compensate the spouse who is not retaining the business for his or her share of the business.
This is accomplished by obtaining a business valuation. While courts can assign a neutral business evaluator to save the parties money, each has the right to obtain his or her own.
The key here is that if during the divorce process, the parties have damaged the income or goodwill of the business, both parties lose.
In short, if people do not work together and preserve their business, everyone loses.