All may be fair in love and war, but when it comes to mixing romance with business, it's best to tread lightly. Believe it or not, nearly a third of businesses in the United States are run by married couples, according to a professor at North Dakota State University. Though going into business with someone you love can be rewarding, it also can be risky. Break-ups and divorces are rarely simple, and the romantic fallout is only amplified by business entanglements.
If not handled carefully, the legal issues surrounding your break-up can pose a serious threat to your business. Here are a few tips on how to protect your business when love goes awry:
Compromise is key.
A break-up can seem like the end of the world, but it doesn't need to signal the end of your business. To ensure an easy transition, both parties should make preserving the company's reputation a high priority. Don't act out of emotion today, only to regret it tomorrow. Be reasonable and objective. This will go a long way in helping your business to weather the emotional storm.
Hire an appraiser to avoid dispute.
Sometimes staying objective is easier said than done, especially when it comes to one of the first steps in a divorce proceeding; having the business valued. Often when couples that are not joint owners attempt to take on these valuations independently, sketchy proposals occur. With the owning partner looking for a low value, and the non-owning partner looking for a higher, the valuation method used (whether asset, income, or market-comparables-based) can get messy. To prevent a professional dispute from turning personal, hire an independent appraiser. This can save you a lot of hurt in the end.
Understand the law.
When dissolving your union, it is critical to be well-versed in local laws. Most jurisdictions include the value of "enterprise goodwill" in a business appraisal, but many exclude "personal goodwill," and some states do not distinguish between the two, permitting valuation of both. To maximize your benefit, your attorney and business appraiser should agree on strategy and valuation methods, while keeping up to date on current cases, evidentiary rules and statutes that could affect the outcome.
Agree upon new roles.
The end of a personal relationship doesn't necessarily mean an end to a professional relationship. If divorcees plan to continue working together, the divorce will most likely require a change in roles. For example, a spouse may no longer work in the enterprise as a partner, executive or board member. This case requires the replacement of his/her skills and a transition of the business role as part of the divorce process. If the spouse has a new role, it's crucial to clearly define (and potentially limit) the spouse's decision-making power in the company, in order to prevent future disputes. It's incredibly important to be realistic about the ability of working together. Personal circumstances often may interfere with a professional business relationship--it may be wise to consider the benefit of one spouse stepping away for the business to continue operating successfully.
Honesty is the best policy--even after the relationship.
Depending on the nature of the divorce, you may be tempted to make some big changes to your business, such as changing the business model to decrease revenue or appointing a new love interest to your board of directors. Don't do this -- it will raise a red flag in court and could result in steep fines and even jeopardize your business overall. Be honest. Use legal strategies to reach a solution both parties can agree with.
Though love often results in a happy ending, it's best to be as prepared as possible for the circumstances of a divorce. Just because a marriage didn't work out, doesn't mean your business has to suffer as well.
Lisa Honey is the Business Lead for Rocket Lawyer's Legal Documents business line. She left the traditional practice of law after seven years in commercial and civil litigation to join Rocket Lawyer. She's licensed in California, Texas, and Arkansas, and thrilled to be part of a company disrupting the legal industry and making the law simple and affordable.