Keeping a small business alive after divorce as a woman can be difficult to do without the proper knowledge. Canada is home to the most active female entrepreneurs in the world with 13.3% of women starting and running their own businesses, according to a report from the Global Entrepreneurship Monitor on Women’s Entrepreneurship.
But with an estimated 40% of marriages in Canada that will end within 30 years, these female entrepreneurs need to safeguard their business from the risks of marital breakdown.
Your business is – or will become – your nest egg. Whether you have a start-up or an already established business, proactively protecting your interest is key. The best way to do this is with a marital agreement and shareholders agreement before a relationship break-down or acrimony occurs. However, if you’re already going through the divorce process and don’t have these documents in place, here are some tips and strategies to consider.
Quick Divorce = Less Productivity Loss
When it comes to keeping a small business alive after divorce, reducing the negative impact of divorce on yourself, your staff and the day-to-day operations is critical. Handling the divorce with thoughtfulness, maturity, and composure will not only demonstrate a good example to your staff, but it can also protect the business from any kind of loss during the process.
If your spouse is a co-owner, or works for the business, the tension of a divorce can be disruptive to employees, vendors, partners, and even customers — and this may lead to reduced productivity. If the divorce gets messy and goes through the court process, employees may be required to appear at a lawyer’s office and questioned by a court reporter. When a divorce case goes to court, the outcome will be subject to the judge’s authority and orders. Business financial statements are filed in open court, which could prove catastrophic.
As the business owner, you may find yourself spending a large amount of time on your case, to the detriment of your company. You may have to show up for hearings, depositions, accounting, and legal meetings. Moreover, a court may involve itself in a business if deemed necessary. This includes assigning a court-appointed accountant in the business. Typically, they can approve or reject a strategic financial deal, creating further disruption.
A preferable option to consider is mediation or collaborative law, either which typically results in lower fees and less time spent reaching an agreement – and provides a private process that you are more in control of during an already difficult time.
Keeping a Small Business Alive After Divorce: Who Gets What
Figuring out how much your business is worth is the trickiest part, as you and your spouse must agree on a number that each of you can live with. Your company’s accountant, or a business valuator, can determine this amount. Once you know how much the business is worth and how much is owed to the other spouse, you can consider your options, which includes buying them out.
This can be done in several ways including a transfer of liquid assets, by a counterbalance against other assets you plan on waiving, or with installments, which can be done over a particular period to minimize financial stress on the business.
Again, a collaborative approach is key during this stage. Dividing the assets in a fair and equitable way for both parties can speed up the process and mitigate the financial, mental and emotional impact. In addition, if the other spouse believes that they were treated fairly during the process, they may be more amenable to flexible buy-out methods.
Staying together in the business after the divorce – is it a good idea?
In some cases, exes may be able to continue as business partners after a divorce, but this is uncommon. If professional objectives remain united, a divorced couple may be able to move forward in business together. This is only possible when both parties are in a healthy place of acceptance about the end of the romantic bond and able to accept the ex-spouse as a professional peer. However, in an acrimonious separation where respect has been lost, staying in the business may not be the smartest decision.
There are many caveats to staying in the business together following a divorce. Things can get awkward for the employees—especially in small businesses with few staff members. It can also have a polarizing effect that can prove disruptive. Having candid conversations with employees and providing reassurance that the business and their jobs are not in jeopardy are both important to maintain trust and ensure the business’ future success.
Keeping a small business alive after divorcee is possible. With proper knowledge, preparation, and legal approach, entrepreneurs can protect themselves, their businesses and their finances.
Nathalie Boutet, based in Toronto, is an experienced family law lawyer, accredited mediator and certified Family Enterprise Advisor™ skilled at providing unique strategies and out-of-court results to the complex legal, financial, and human matters related to separation or divorce for high-net-worth families and business owners. www.boutetfamilylaw.com
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