Special considerations that, if handled successfully, will help in preserving a business when a couple in business together divorces.
By Brooke M. French, Family Lawyer
Just as each marriage is unique, so is each business partnership, and blending the two can create challenging issues, even on a good day. But, if a couple in business together divorces, there are special considerations that, if handled successfully, can preserve the company.
Will the Business Continue?
This question is critical. The couple should candidly – and under the guidance of legal counsel – decide how the business will function during the divorce. Will both parties continue working in the company? Are they truly able to separate their professional from their personal relationship? Next, at the divorce’s conclusion, will the business continue to operate, and in what capacity? Each spouse’s role should be clearly defined, and special consideration should be given to any leadership transition, not only from a legal and financial perspective, but also in terms of the day-to-day operations and management of the company and its employees.
Next, at the divorce’s conclusion, will the business continue to operate, and in what capacity? Each spouse’s role should be clearly defined, and special consideration should be given to any leadership transition, not only from a legal and financial perspective, but also in terms of the day-to-day operations and management of the company and its employees.
Keeping Company and Personal Assets Separate
Ideally, the business assets are kept separate from the couple’s personal piggy bank. Unfortunately, in many smaller, family-owned businesses, records are not as meticulous, and the lines between business and personal funds are blurred.
This becomes particularly troublesome when one spouse uses the business assets to fund litigation, living expenses, and even debts.
Maintaining company finances separate from personal assets is prudent – and sage advice regardless of divorce. Either spouse should always be equipped to make an informed financial decision.
The Business as Part of the Divorce
Regardless of whether one or both of the spouses plans to continue in the business, the company’s value is a central question. The process often requires gathering documentation for the valuator, who may conduct a site visit and interview key personnel. This can be problematic if one spouse refuses to provide the required documents or prevents access to the staff.
Will the wife sabotage the office space? Will the husband rack up superfluous charges on the company credit card?
Although neither party benefits from the destruction of the business, sometimes one spouse engages in irrational behavior, and ultimately damages the business while seeking revenge. Many divorcing spouses do not believe the other party is capable of malicious intent. But, in a divorce context, unusual behavior is the norm, not the exception.
For example, if one spouse is removed from the day-to-day responsibilities, it may be necessary to change the locks or alarm code on the building or limit his or her access. Financial records may need to be safely stored so that they cannot be destroyed. Vendors, financial institutions and others with whom the company transacts business may need to be informed of how the company plans to move forward during and after the litigation.
Be aware, however, that these limitations may escalate the divide, and cause problems in both the litigation and the business.
Although most workplaces maintain that email accounts and computer equipment are company property, many employees – and in particular the owner – use these for personal use in some capacity.
Divorcing spouses should be cognizant of each other’s access. To maintain confidentiality, neither should use the business computer for communicating with his or her attorney or working on divorce-related documents nor should divorce-related information be left where the other spouse may see it.
Preserving a Business: Consider the Employees
Employees value security, and divorce among the owners of the company is the antithesis of that assurance. Employees may sense something is amiss even before the news is communicated officially, and they will want to know how the divorce will affect their jobs.
Although no one wants to share personal details, particularly with his or her employees, it may be necessary for the owners to make the staff aware of the divorce, and discuss its impact in both the short- and long-run.
Understandably, employees may have questions that are uncomfortable to answer, but require authentic and open responses to ensure a productive work environment.
Divorce can be complicated, and divorces between spouses who are also business partners are unusually challenging. Considering these issues will help facilitate a resolution that is beneficial for the spouses and their business.
Brooke M. French is a family lawyer and registered mediator with Boyd Collar Nolen & Tuggle in Atlanta.
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