When a marriage is going well, it’s tempting to make your spouse your partner in all things – businesses included. However, this can lead to problems down the road if you ever decide to divorce. Handling a divorce while continuing to run your business effectively is tricky, but you can do it. Whether you’re both actively involved in the company or one of you is a silent partner, it’s possible to remain business partners even when you are no longer life partners.
The Risks of a Divorce Between Business Partners
Divorcing your business partner affects the two most important aspects of your business: day-to-day operations and financial solvency. The first step to avoiding these problems is understanding what they are.
Operational Confusion
Depending on how involved you and your former partner are in the business, a divorce can throw daily tasks into chaos. Without coordinating, you may give your employees contradictory messages, you may be slow to respond to questions, and duties may slip through the cracks. This can quickly lead to a messy situation and the loss of clients or your reputation.
Financial Impacts
On a more long-term scale, a divorce can seriously affect your business’s ability to stay afloat. Whether or not your former partner was seriously involved in the business, at least part of any company you directly own is going to be considered community property in California. That means that your partner has a 50% share in the business. If they choose to cash out their equity, that may not leave your business with the assets it needs to continue to function.
Furthermore, a divorce can lead to choppy financial waters when emotions are running high. It may become tempting to make the business less profitable when you’re splitting proceeds with a former partner. However, that not only goes against your own best interest, it also may lead to accusations of fraud. It’s best for everyone involved to keep your business and personal lives separate.
How to Mitigate the Impacts of Divorce
Getting a divorce doesn’t have to lead to your business falling apart. By following a few basic guidelines, you can remain a good business partner even as you officially end your romantic partnership.
Keep Emotions Out of the Business
The most important rule of divorcing your business partner is to keep your emotions away from the business. Your feelings about your divorce should not affect the running of the company. If you have employees, don’t talk to them about the divorce or ask them to take sides. Keep putting in the work to keep your business and your reputation in good standing.
Letting your emotions affect your business decisions may have two drawbacks. First, it will generally lead you to make impulsive or harmful choices. Second, if you are in a contentious divorce, your former partner may use these choices against you when it comes to the division of assets. If you appear to be making poor business decisions, the argument may be made that you are lowering the value of marital property and committing fraud.
Keep Careful Records
Well-kept records are critical for every business, but they’re even more vital during times of change. Divorcing your business partner is a perfect example of a time when your keeping should be pristine. Meticulous records will help you to keep track of how your business is doing and to demonstrate your reliability to the court and your clients.
Address the Divorce with Employees and Clients – Carefully
The other people involved in your business, whether they’re employees, contractors, stakeholders, or clients, have a vested interest in its success. Trying to hide your divorce will not fill these people with confidence when the matter finally comes out.
Instead, reach out to these people with a reassuring message informing them that you are getting a divorce, but it will not affect the business. Many people will appreciate this honesty. It also allows you to control the information that people hear instead of letting the rumor mill make people uneasy.
Set Formalized Rules for the Business Relationship
Before the divorce, you and your partner may not have had clearly defined roles in a business. You both worked together to manage the company, so there was no need to assign specific duties. Getting a divorce can make this a much more complicated way to handle business affairs.
Whether or not you both intend to remain involved in the business, it’s worthwhile to write formal descriptions of your responsibilities. If you both want to continue working in the business, these roles will help delineate your tasks and prevent future disagreements.
If one of you intends to step back and act primarily as a shareholder, then it’s valuable to get this in writing. Traditional business partners have these agreements in place in most cases; if you intend to remain business partners yourselves, then this clarification of roles is even more valuable post-divorce.
Work with a Neutral Third Party
Even the most amicable divorce is still an emotional process. It may not be easy to separate your emotions from any of the above tasks cleanly. That’s where a neutral third party can help you handle your affairs more effectively.
Working with someone trained in legal and financial matters can help you keep your business thriving even when your relationship is ending. They can offer a neutral opinion that you may not be able to see at the moment. They can also help you negotiate with your former spouse to keep things running smoothly. Finally, and most importantly, they can help you keep your business from becoming another divorce battleground. A neutral third party can be the key to keeping your business relationship amicable.
Professionalism Is Paramount
Getting a divorce is a difficult experience, but it doesn’t have to affect your business. Remaining professional throughout the divorce process will help you remain an effective business partner. Keep your emotions away from the company, setting some ground rules, and working with a neutral third party can help you keep your business thriving even while you and your former spouse separate.
