I wanted to share this article I found in the National Post, FP6 page, Monday, April 20, 2015 written by Rick Spence. I have transcribed much of it.

Being married and starting a business together can be wonderful until it’s not… divorce. When a couple divorces and jointly owns a business together this can become more complicated.

The vast majority of married business partners do not have formal business agreements if something were to happen to the marriage. This can cause a problem once a couple splits and things become strained.

Putting a business plan together after the fact is not always easy as there are emotions involved; you can be dissolving a marriage while at the same time putting together a formal business plan. Without that plan in place, the business can suffer financially due to lack of creativity, innovation and growth. Often it can lead to a stagnation. Other issues arise as, where you once saw eye to eye, or at least felt decisions were both in your best interest this is often not the case after the separation.

Another concern is that for one of the partners to leave a business can be challenging when both parties feel they built the success of the business together. Who will walk away with a package? Who will stay? What direction will the company take?

The typical approach for any business partnership is to establish protocols and processes from the outset. This way when a marriage dissolves the business/company has a path to follow. When there is no plan one of three things can happen:
1. Complete dissolution of the business and splitting the proceeds
2. Continue joint management
3. Buyout by a spouse

Rarely do these things go smoothly and sometimes it ends up in court with a decision being made there.

It is suggested to start with a signed document that outlines how the business could be split in the event of a breakup. While this would not be binding, having some clarity provides some sort of safety net for dealing with the situation. At minimum you want to specify what will happen if profits need to be divided and the appropriate splits, especially in situations where one has put more personal money into the business. It is very challenging to deal with this post separation, more complicated. This is true especially when dealing with employees, clients, suppliers, creditors and distributors.

What complicates this matter is that a resolution requires that input from both a family and commercial law specialists. When both parties own shares there needs to be an evaluation and this can cause issues. The commercial lawyer needs to instruct the party as though its a business deal – no emotion.

The problems arise when one party refuses to sell their shares to the other, or one spouse has an inflated view of the valuation of the business. There may be debts and obligations to the creditors and staff, banking arrangements – including signing authority – may have to be changed.

When it becomes so acrimonious it will be better for both parties to bring in as much third party guidance – i.e. accountants and legal professionals.

If you do not think ahead and put a plan in place for what will happen if the marriage dissolves can feel like you are going through a divorce twice – first time to address the personal stuff and second time the business stuff however it feels more personal.




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