No one enters into a relationship expecting it to end in divorce. But unfortunately, it could happen. In the United States, about 2.3 per 1,000 people divorced in 2020, equating to roughly 630,000 divorces.
And while this decision can be emotionally devastating, it can also significantly impact your business. Here are some steps to protect your business from the potential fallout of divorce.
Create a prenuptial agreement
A proactive way to protect your business in case of a divorce is to create a prenuptial agreement. This document outlines each spouse’s assets and liabilities before marriage and what would happen to them in the event of a divorce.
Prenuptial agreements are not just for the wealthy. Couples of all income levels can benefit from this type of agreement. It helps avoid potential conflict down the road and clarifies what is fair in the eyes of both parties.
When you’re creating a prenuptial agreement, be sure to include provisions for your business. That means specifying that the company is separate property and will not be subject to division in the event of a divorce.
Of course, you have to talk to your partner about this beforehand. It might not be a conversation anyone looks forward to. Still, it’s essential to have an open and honest discussion about your finances and what would happen to your business in the event of a divorce.
Keep your business and personal finances separate
Many business owners blur the lines between their personal and professional finances. But keeping these two areas separate is essential if you’re going through a divorce.
That means having two bank accounts, one for your business and one for your personal expenses. You should also have separate credit cards for each. In doing so, you can avoid any potential conflict over who pays what business-related expenses.
Having a clear separation of duties within your business is also a good idea. If you and your spouse work in the company, you should have clearly defined roles and responsibilities. That way, there’s no confusion about who is responsible for what.
Maintain good records
It’s always a good idea to keep good records, but it’s essential if you’re going through a divorce. Detailed financial records can help to prove that your business is separate property and not subject to division.
So, make sure you keep track of all business income and expenses. That includes everything from sales receipts to invoices to bank statements. If you have employees, keeping detailed records of their salaries and benefits is also a good idea. Although it might seem like a lot of work, good record-keeping can save you a lot of headaches down the road.
Keep communication open
Sometimes, good communication is all it takes to protect your business from the fallout of a divorce. Keeping the lines of communication open with your spouse can make or break the success of your business. So, maintain a civil relationship, even if things are tense. You don’t have to be best friends, but respect is essential. In doing so, you can avoid making decisions that could jeopardize the future of your business.
An amicable divorce is always the best-case scenario. But even if that’s not possible, keeping communication open can help minimize the impact on your business. Besides, you never know when you might need to rely on your ex-spouse’s help down the road.
Maintaining this type of relationship can be difficult, especially if there’s a lot of bad blood. In that case, it might be best to appoint someone else to be the primary point of contact between you and your ex-spouse. That way, you can avoid any potential conflict.
Seek professional help
If you’re worried about how your divorce might affect your business, seek professional help. An experienced family lawyer can offer guidance and advice on protecting your company during this difficult time.
A business valuation expert can also help you determine the fair market value of your business. This part is essential because, in some states, the court may consider your company’s value when dividing assets in a divorce.
Enlisting the help of professionals can be costly. But it’s often worth the investment to protect your business from the adverse effects of divorce.
Divorce is never easy, but it doesn’t have to be the end for your business. Taking the right precautions can minimize the impact of this stressful time. So, don’t hesitate to follow the above steps to protect your company. Doing so ensures that your business remains thriving, even after you’ve parted ways with your spouse.