The many layers of divorcing your business partner/spouse

It goes without saying the sting of divorce runs deep. For couples who are also business partners, it can present an even greater challenge as parting represents a change in your professional as well as personal life. Usually.

It may sound odd, but some divorcing couples stay in business even after the divorce. Some even want to remain in business together.

Of course, the most common occurrence when couples/business partners divorce is that one party buys the other out. Typically, that’s because one spouse has a more active role in the company (e.g. one spouse runs the business while the spouse works part-time and helps with administrative tasks).

A buy-out might not always be possible. That’s when a collaborative divorce approach comes in handy.

First and foremost, it offers flexibility and negotiation for a variety of options. Second, a collaborative divorce team includes more than attorneys but experts who can offer advice and solutions (e.g. financial experts, business brokers, etc.). That could include creating a payment plan for the spouse who wants to remain in the business but can’t afford to buy their spouse out. Such an arrangement might not be possible in litigation where the judge’s priority is to separate the parties and any marital assets as quickly as possible.

There are some cases where divorcing couples/business partners actually want to keep the business relationship intact. This can be for several reasons beyond one spouse being unable to buy the other out. Perhaps as business entity couples work far better together and splitting up would cost money and mean starting from scratch. Think of Sonny & Cher’s divorce in the 1970s.

Together, Sonny & Cher had a hit TV series and chart-topping hits. Divorced and as solo acts, both of their TV shows bombed. Some couples have successful businesses because of what each brings to the table (e.g. a restaurant where one spouse runs the staff while the other makes the best-selling gourmet muffins). The prospect of starting over again, essentially from scratch, can make some couples want to remain together as a business entity. This arrangement also can benefit from a collaborative divorce approach.

For example, one of the objectives of a collaborative divorce is to provide the parties with problem-solving skills and strategies for resolving conflicts that arise after the divorce is over.  Also, working with the collaborative divorce team, couples can negotiate an agreement with specific language that addresses possible landmines. One of those could be a timetable to evaluate the relationship and offer a potential buy-out if either party wants to opt out in the future. For example, a divorce agreement with a couple as business partners could give either partner the option to buy the other out after one year, two years, or some other predetermined timetable.

The agreement could also include terms of management and operation. For example, establishing a formula for determining salaries, or making both spouses 50-50 partners, with an agreed-upon third-party acting as an arbiter in the event of a disagreement on business decisions.

There are a number of scenarios where a divorcing couple could maintain a business partnership. With the right people, it can work. Yet being in business with your ex can present an enormous amount of challenges (e.g. what happens to their ownership share when a spouse remarries). In fact, it would not be unusual for a couple to enter a collaborative divorce negotiation with the intent on staying business partners only to find out, through the discussions, that things probably won’t work in the long run.

“It’s not personal, it’s just business” is a famous line from the first Godfather movie. When you are in business with your spouse, business will always be personal. A collaborative divorce negotiation can help many couples determine if the next step of staying in business together is the right one on a business and personal level and put in safeguards should the arrangement ultimately not work.

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