Divorce is bad business

Ending a marriage is never an easy process. Just ask anyone who has been through it. But when you own your own business and decide to end your marriage, you are not just putting your personal assets at risk -- your entire business is at stake.

Without a prenuptial agreement, the value of your business which accumulated during the marriage is subject to division -- in half! The unfortunate reality as a business owner is that planning is not just something you should do, it is something you must do before you even consider ending your marriage. Think about these factors which will come into play in a divorce or dissolution setting.

The first question to ask yourself is: What is the value of your business right now and what was the value of it when you married your spouse? Once actually in the dissolution process, your spouse's attorney will want to hire a neutral professional valuation company to objectively and professionally determine these numbers.

But before you take that step, you will want to have a ballpark estimate of what they will find. Work with your accountant and attorney to consider a few of the basic methods of valuing a business: the income approach (a multiple of how much the business earns) and fair-market value or a look at comparable sales or what you could sell the business for in the marketplace discounted for any lack of marketability. And keep in mind that the book value of your business will not be acceptable to your spouse's attorney so be sure to use realistic methods of valuing your business. You may also want to consider hiring your own valuation company to give you hard numbers based upon more sophisticated valuation techniques. This information will be useful in negotiating and may help to minimize the time lawyers will spend trying to understand the value of the business. This first step in managing your business through a divorce is to understand the value today versus when you were married. Half of that value is what your spouse is entitled to in a divorce.

Once you have a good idea of the value of the business and the marital portion of it, you now need to consider how you are going to fund buying out your spouse's interest in the business. Start working with your lawyer to determine all of your assets and liabilities so that you can consider creative alternatives to your spouse "going after the business."

There are many questions to ask at this juncture. How soon are you getting divorced? Can you sell off other assets or pay your spouse with a promissory note to avoid splitting up or selling the business? Can you provide more spousal support, which has a tax advantage to you and may be beneficial to maintaining your spouse's lifestyle for a period of time? While you certainly cannot hide money or purposefully decrease the value of the business, you can be strategic in how you position yourself financially. It may also be important to talk with your banker at this juncture to determine if any of your lines of credit will be jeopardized by your pending divorce.

This is a critical and often overlooked step in ending a marriage when you own a business. As you move through a divorce or dissolution process, you will feel a little stress to say the very least. This will impact your business. It is important for you to realize that before you are in the throes of an emotional nightmare, you must develop a management plan. Communicate with your key employees about your personal situation and ask for their help in watching the business.

Ask for help from your advisers to be an objective third party watching out for your interests while you go through the divorce or dissolution process. Anticipate that you will be distracted and the process may take up to 12-24 months or more depending upon the complexity of the situation. Prepare a written business plan to keep you and your business on track.

The best technique for negotiating the end of a marriage is the collaborative law approach. In this type of negotiating, the attorneys and clients work together to reach agreement and avoid adversarial posturing. In true collaborative law, the parties and the lawyers actually sign an agreement not to go to court. This can be very advantageous for you when you own a business if you have done your homework and are prepared to negotiate fairly. If you cannot collaborate and negotiate a settlement in ending your marriage, you will end up in court. While this is an alternative, ideally you do not want a judge deciding how your business will be divided or sold to provide your spouse his or her equitable share. Accordingly, finding an attorney who believes and practices collaborative law is essential.

Before you even begin the negotiating process, however, do your homework and determine what your spouse will want. Does he or she want to keep the house? Does he or she have a certain lifestyle that you can help maintain for a period of years? Does he or she want to redecorate the house or take a trip or want something else that you can provide? Does he or she really just want it to be over, too? Determine what your spouse is looking for in this process. You might be able to strategically position yourself to negotiate to give him or her something in exchange for not being aggressive toward the business. Know what he or she wants.

Ending a marriage is never easy. It is a difficult experience no matter what the situation may be. And, if you have children together, you should always take steps to seek counseling and try to save the relationship to keep the marriage intact. However, sometimes, a marriage just can't continue to work. And, when you have reached that point of extreme unhappiness and misery in the marriage that cannot be changed or resolved, it might be time to consider ending your marriage. When that time comes and you own a business, take the time to consider all of the issues to keep your business running.