By Zaneilia Harris
Being one myself, I know business owners wear many hats. You’re the chief strategist for business development, technology, financial management, legal compliance, and operations, juggling multiple projects at any one time, often reacting instead of being proactive to problems. Having cash flow to meet liquidity needs is always a priority.
So what happens if you find yourself or your partner going through a divorce? Is your business (a highly visible asset) protected?
This is why insurance is key—protecting you from risk. You should ask yourself do I /we have enough insurance?
But insurance is just one thing to think about. Here are seven other tips to preparing for the worst—even if it never comes.
Let me elaborate by providing a more detailed scenario. Say you have been married for 20 years and you’ve owned the business for 10. Unfortunately, you and your husband decide that it’s best to end your marriage. Your spouse is your partner. In negotiating the divorce settlement, your soon-to-be ex-husband asks to maintain ownership in, or to get cash from, your business. How are you going to provide liquidity so that maintaining ownership is off the table?
For you, selling the business or sharing ownership isn’t an option. So how do you protect yourself and your business? (Note: most of these items can also apply to break-ups with a non-spouse partner.) Establish plan in place in good times to address giving him a cash payout instead of ownership in your company.
Know how your state splits assets. Are you living in a community property state like California?
Have a plan to have the company valuated by an independent appraiser. This will provide a basis for insurance coverage and for selling, if needed.
Keep business and personal assets absolutely separate.
If you have stock ownership, an agreement should be made that the stock must be sold back to the company in the event of a divorce. Stock should only be given if the spouse works in the business. If he doesn’t, do not give him stock ownership.
If spouses are co-owners, have an agreement with a push-pull. Either one of you can decide to buy the other out or sell to the other spouse. You may want to add a non-compete to safeguard the existing business.
Agree to a cash payout for a specific time period instead of a lump sum so the split-up doesn’t drastically affect current cash flow. It’s just easier for a firm to digest smaller payments.
Have a team of professionals in place (financial planner, CPA, business attorney, and insurance agent) to guide you both professionally and financially. You don’t want to wait until a crisis to develop these key relationships. Also, do your research so you have a core understanding of what you want to have in place so you are can add value to the discussion with your advisory team. Hire individuals whom you feel you can trust based on your gut, but make sure they have the credentials and experience.
Harris and Harris Wealth Management Group is a boutique financial advisory firm focused on educating and supporting professional women and the community as they build and transfer wealth. Operating under the belief that in order to impact a community you must first empower women, the firm’s goal is to help clients achieve financial success by guiding them through major life-changing events such as marriage, divorce, widowhood, career transition, and the selling of a business.
Zaneilia has recently published Finance ‘n’ Stilettos: Money Matters for the Well-Heeled Woman. For more information, visit www.hhwealth.com/fns.