Q. My husband and I jointly own and run a restaurant. We have both, in the past, faced heavy financial losses due to divorce and we don’t wish to be in this situation in the future. What should we do to safeguard both of our interests in the event of a marital split?
A. Some may think this is an unromantic approach, but knowing your interests are safeguarded can give you both real peace of mind and allow you to get on with your lives without nagging worries about the future.
If you don’t already have contractual documentation detailing how any shareholdings in your business are split, what your working relationship is, and how things should be divided if this relationship were to end, then it is important to put these in place now.
Make sure your financial records are transparent and up to date, with any deposits and withdrawals, and any loan and repayment terms clearly detailed. These will be taken into account when it comes to dividing assets.
You may want to consider transferring all intellectual property (IP) rights to the company. This means that one party would need to buy out the other if they want to continue to run the business after a divorce. You can also draw up a founders’ agreement, detailing what happens in the event of a split. You can establish restrictive clauses too. Typically these would prevent a former partner setting up in direct competition or poaching clients.
Be aware that if you don’t have clearly defined business contract with your husband then your business, like your personal assets, is likely to be split 50/50.
In the event of a divorce, there are some common scenarios that can cause issues for couples in a business partnership.
Unfortunately it is common for one partner, who perhaps has had a backseat role in the running of the business, to use his or her joint ownership as a bargaining chip to leverage a more favourable divorce settlement.
Similarly, it is quite common for one partner to set about hiding assets once divorce is on the horizon, by delaying the preparation of accounts or by liquidating assets.
If, during the course of divorce proceedings, you need to make a key business decision, like renewing a lease or finding a funding source, you may find it more difficult to agree on this decision, in the heat of the split. If you cannot agree on the right course of action your company is likely to suffer and it could be wound up.
These are some of the potential pitfalls that can occur when it comes to splitting with a business partner, but it is by no means impossible to come to a satisfactory settlement. And, in fact, it is fairly common for former life partners to continue to run a business jointly once the dust has settled upon a marital split.
I cannot stress enough the importance of getting your books and your financial affairs in order, engaging good accountants and lawyers who are adept at resolving issues rather than taking an adversarial stance, and considering arbitration or mediation as a way of resolving any issues as amicably as possible.