If you run a small business, you already know how much time; efforts and resources are required to keep it moving ahead. And if you are running a small business, than your emotional and physical health and well-being are even more important to the business. As you are the key to the entire business.
When, in such a case, you are faced with a divorce, it can be a very disturbing time. Divorce in itself is often devastating to the parties involved, but when one of those parties is a small business owner, the business can be affected as well.
Aside from the financial side, the anxiety and emotional turmoil of the divorce can have a major negative bearing on the business. Not only can it affect the person who is the party to the divorce, it can also affect other business partners and employees.
To distribute the assets of the business in a divorce, valuation is necessary to determine its value. This requires the services of a financial expert who will scrutinize the books and records of the business. To get a complete and full picture, questions will be asked about business practices and expenses. Financial documents concerning the business must be produced. This raises the risk of confidential information concerning the business operations being disseminated.
This valuation process can in itself be a significant cost. Since there are two parties to the divorce, often two financial experts are engaged. Then employees who would assist these experts have to take time away from business work.
To arrive at a conclusive figure for the valuation of the business, usually operations are stalled. This is also because if the value of the business increases, additional monies will have to be paid to the spouse. The worst case scenario is where the business has to be sold in order to pay the non-owner spouse their share of the distribution.
As can be seen, this is a delicate and trying process. To reduce the stress that can result, there are a few steps that you can take.
- Get Legal Council: A divorce is a legal matter, apart from being a personal, family and emotional one. So unless, you have the distinction of having gone through several divorces, the most important thing to do right away is to contact reputed family law specialists. The parties in a divorce can sometimes be emotionally charged with many years of emotional baggage. Since the attorneys are outsiders, they can keep a much more level head and work out a solution in everybody’s interest.
- If you signed a prenuptial or postnuptial agreement that could predetermine the distribution of assets in a divorce, and thus make the whole process faster and smoother.
- In case of multiple business owners, the business partnership or shareholder agreement can address a methodology of buyout or valuation of interest. While this might not be considered a binding document in a family court, it does exhibit the intention to minimize disruption to the business in relation to the other owners. This is a point a court would likely respect.
- In case neither agreement mentioned in points 2 & 3 above exist, a single joint financial expert can be hired to value the business. This will keep costs down and streamline the process. The valuation will move more rapidly if the books and records of the business are well organized and readily available.
- Since we are dealing with a small business here, trade secrets are an important component. The parties involved, counsel and any experts should enter into a confidentiality agreement to protect sensitive information and assure that this will not be disseminated.
- In cases where there is not sufficient cash to pay the spouse for their share in the business, a settlement can be structured with payments made over time so that the business can pay from its organic cash flow and survive.
Involvement of the small business in a divorce is inevitable given that it is frequently the largest marital asset owned by the parties. It is therefore a matter of handling this distribution in a calm, professional manner which will see the business protected from disruption.