Divorce is the dissolution of a partnership, and in some cases, it’s not just a romantic one. If you run a business with your spouse, divorcing them involves multiple layers of separation. What’s the best way to handle divorcing your business partner?
What will happen to your company after divorcing your business partner?
Under Texas law, any assets gained during a marriage are considered community property. That includes any ownership stakes in a business. While the business itself (if properly incorporated) is separate from your individual debts, it’s considered a valuable asset on its own. Therefore, it’s subject to an equitable division between spouses, just like the proceeds you’ve earned from the business.
As with any change in a business’s ownership, it can be divided, bought out, or sold. It’s the same process whether or not the owners are married. The main wrinkle is that marriage creates a basis for “equitable division of the assets.” In other words, changes may be necessary to meet the family court’s “just and right” division of marital property. If both spouses could claim equal stakes in the business but no longer wish to run it together, splitting or selling the business could be the best options. (If you have a prenuptial agreement, see how it affects the division of business assets.)
There are four possible outcomes for a business owned by divorcing spouses:
One spouse buys out the other’s stake
This scenario could be a good solution when one spouse is more invested in the business, whether logistically, financially, or both. A “silent partner” could relinquish their interest in exchange for funds or other assets. The spouse who wants to keep the business could buy their shares, effectively removing their ownership stake. The business itself stays intact.
Consider whether your business has enough liquid assets to make this solution work. If there are multiple owners and/or partnership agreements, those will also have to be considered.
The business gets split evenly
Some divorcing business partners can split their enterprise just as they divvy up their household belongings. This solution often works well for client-based businesses: you take your clients and equipment, and your soon-to-be-ex takes theirs.
The business is sold and the proceeds are divided
Divorcing business owners can sell the company and split the funds. The proceeds of the sale are subject to equitable division, just as with any community property. This option may be ideal for couples who cannot continue operating the business on their own. Sometimes, it’s easier to make a clean break from all shared endeavors, letting the business go to new owners just as you might sell your house or furniture.
Owners continue running the business beyond divorce
Relationships evolve, and in amicable situations, some married business owners find they can continue working together beyond divorce. This can be an appealing option for those who have equally invested in the business and don’t want to lose it. The key is to truly separate their working relationship from their romantic one. Of course, there may be some wrinkles in how their change in marital status affects their taxes and business income. Consult with both your financial and legal advisors to get a clearer picture of how this may change.
To determine which option is best for your situation, consider the following:
- Who runs the day-to-day operations? Is one spouse more passive?
- Is it feasible (financially, practically, emotionally) for one to be the sole owner?
- Whose skills are crucial to running the business?
- Will you need a new business partner?
This decision and the resulting process can be daunting for sure. Splitting or selling a business adds a new layer of complexity to an already heavy situation. Some people delay seeking divorce because they’re concerned about losing their business or livelihood. Remember, a business can evolve as you do. Your ultimate happiness is worth the strife. Having a compassionate legal team by your side can make all the difference. Learn about Alexandra Geczi Family Law’s approach to complex property issues in divorce.
How can you navigate divorce while running a business?
Depending on your business’s size and industry, you may have regular customers or clients, as well as a close-knit workforce. Your team likely knows you and your business partner are married. Hearing that the bosses are seeking divorce often creates concern among employees. Will they lose their job? Will they have to face drama at work?
Establish firm, clear boundaries at work
For everyone’s sake, it’s critical to separate daily operations from divorce proceedings. Protect yourself, your legal case, and your business by sharing only relevant details and keeping it professional. Be honest with your team about what’s happening, but avoid discussing the ins and outs of your divorce. Stick to the facts (a good rule for talking about your soon-to-be ex with most third parties). Proactive honesty can help slow down the rumor mill and quell your employees’ fears.
Set expectations and communicate regularly
On that note, communicate any changes in the business as soon as possible. Whether you’re selling or dividing the best, let your team know what to expect. Will they be able to keep their job? Will they be reporting to your ex instead of you, or vice versa? You may not have all the answers upfront. Maintain open lines of communication to preserve trust and give your team ample notice to make adjustments.
Put the business first
You and your soon-to-be ex may argue over business decisions. Perhaps you’ve traditionally had disagreements, and the divorce exacerbates them. Perhaps the emotional strife brings hidden issues to the surface. But no matter the situation, remember: stick to the facts and keep a clear head whenever possible. When emotions cloud your judgment, focus on what the business needs.
It can help to lean into your senior employees’ capabilities and insights. Their objective point of view could be a lifeline while you and your partner navigate these changes. Can they help manage daily operations such as shift assignments and inventory orders? Are they well enough versed in your company’s goals and vision to assist with sales pitches or vendor presentations?
Protect your mental health
No relationship or business endeavor is more important than your mental health. Divorcing your business partner can take a toll. By understanding this and getting proactive about your well-being, you can help yourself reclaim your life and heal sooner. Be realistic about how these changes may affect you. It’s okay to grieve and feel stressed!
Consider how you can protect your peace as you separate from your spouse and business partner:
- Be willing to delegate tasks — which is vital to business owners’ mental health. Defend yourself against burnout.
- Take time for yourself. Turn off your business cell and log out of your computer and emails — if only for a couple of hours. During that time, indulge in something you enjoy.
- Don’t entertain workplace drama such as gossip about your ex or nosy questions. Lean on your trusted friends and family to vent frustration or discuss your emotions.
Remember, you’re in charge — of your business, your health, and your overall happiness. Divorcing someone who’s also your business partner can be difficult, but with a careful strategy and a clear head, you will ultimately prevail in your life and career.
Reach out to Alexandra Geczi Family Law to learn more about our divorce services and how we can help you navigate divorcing your business partner, from changes in your business to splitting your enterprise.