What happens to my business in a divorce?
Your business has the potential to be treated like a piece of property and divided. This would be similar to any other property that exists in your marriage, like a home, automobile, or retirement account. Often, a business, or the value of the business, is divided and distributed in portions to each spouse.
The unique thing about a business, is that with the right preparation and strategy, there are far more avenues and options on how to treat it during a divorce than to divide it. Many of those options involve keeping the business 100% intact and in control of the business owner. This is always our default approach, because a business is not the same as a home or automobile.
We see your business not as just a piece of property, and much more as a living and breathing part of your life. Your business exists to help people, sustain you and your employees financially, and is a culmination of thousands of hours of hard work and dedication.
It’s very easy for an inexperienced business owner or attorney to take the path of least resistance, and treat the business like a simple piece of property. This is always to the detriment of the business owner and creates bad agreements. We work very hard to make sure our clients have the best results possible.
Why do you help business owners?
We are business owners with families, which helps us relate to and empathize with our clients. We know what it means to devote time, money and dedication to building a vision, and having people rely on that. It can be hard for someone in the middle of a divorce to see that a divorce has the opportunity free them in ways they can’t even imagine. They can’t see the potential to be at their best when all is said and done. We want to help business owners realize that their business will have the opportunity to thrive and grow, and they won’t owe a piece of their vision and dreams to anyone. They can have this without making compromises with their family. That’s our vision for our clients, and why we do what we do.
What type of small businesses do you help?
The definition of “small business” is very broad on a national scale. We help business owners of all classifications (sole proprietorships, partnerships, LLCs, corporations) and in all industry types. We limit our services to privately held businesses, with less than 50 employees, and less than $25mm in gross annual revenue. This allows us to fine tune our experience and resources to better serve our clients.
The above is not a hard and fast rule, there are always exceptions. For example, we find that service based businesses typically have less overhead, fewer employees, and wider profit margins on their annual receipts. Product based businesses, while scalable, almost always have large capital outlays, significant overhead, and slimmer profit margins on their annual receipts (which often exceed $25mm). We understand the nuances between each model and will adjust strategies accordingly.
Will my spouse get a portion of my business?
This is a difficult question to answer without knowing the specific details of your business. A spouse has the potential to be awarded partial ownership of your business, assets from your business, or a cash award based on the value of your business.
For example, your spouse is almost certainly going to ask for cash distributions if there are cash assets available. However, we know that cash sitting in a business account isn’t necessarily cash available as income. Payroll, leases, insurance, supplies and other overhead expenses need to be paid. Reinvestment into the business is equally as important.
This is why creating a plan and strategy on how to protect the business is so important.
What is my business worth? Is it just money?
Worth is a very personal concept and there are many considerations beyond just money that must be accounted for. The fair market value of a business is generally based on what the business will appraise for. The worth of a business, and the fair market value of business, are not always the same.
It is very easy for an attorney to meet with a business owner, and attempt to drive the conversation directly to what a business is worth from a fair market value perspective. We believe this is a great disservice, because there are considerations beyond FMV. It is important to recognize these considerations and how they impact what the business is worth to you personally.
If your attorney is only asking you about gross revenue, they are missing the bigger picture. We deeply understand the ups and downs that you’ve likely experienced building your business. Going through a divorce has almost certainly compounded these emotions. Many owners reach a point where they would prefer to torch the whole thing, than see it divided or lost. We strive to help business owners feel safe to reflect on where they are actually at emotionally and financially. We can discuss this in depth at a consultation, and help you understand both how to evaluate what your business is worth, and what the monetary value of it is.
Is there a chance I will lose my business?
Without the right preparation and strategy, there is a possibility you might lose your business. We don’t gamble, and instead we make plans on how to capture success.
We develop a strategy that begins with understanding your business in great detail. We examine the strengths, weaknesses, opportunities and threats that exist because of the divorce. We review your industry, revenues, expenses, outstanding liabilities, and ledgers. We map out a full plan on how to protect the business and work very hard to see that strategy through.
What is the best way to protect my business?
Most small business owners put it all on the line to build their business. They’ve poured their time, money and soul into building it. Anyone that owns a small business knows what it means to potentially lose it. It’s not just the business that’s on the line, it’s their hard work, dedication and life, because these things and the business are one and the same.
A divorce is something that scares most small business owners. They don’t know what happens to their business in a divorce and feel overwhelmed. This feeling can intensify if both spouses work in a business, or if there are business partners, or there have been substantial amounts of money invested in the business by family and friends.
We help small business owners feel less fear and worry, and more confidence in knowing how to protect themselves through this process. We make sure when agreements are reached, they are drafted correctly. You generally have one chance to have everything done right, because the smallest mistakes, particularly when drafting agreements, can have permanent and serious consequences.
We have met with enough business owners who navigated their divorce by themselves, to know that it’s not worth putting tens, or hundreds of thousands of dollars on the line, or the future of their children, to save the expense of getting it done right.