Divorce can be emotionally draining and stressful for everyone involved, but there is another layer of complexity for business owners. While it’s not a pleasant topic, particularly if your relationship is a happy one, the reality is that 1 in 3 marriages today end in divorce, so it’s critical to consider the what-ifs in your business and financial planning.
Here are some tips to safeguard your business against divorce.
#1 Ensure all business partners are on the same page
If you have business partners, it’s important to talk to them early about what would happen if any of you were to go through a divorce. Whether it’s your divorce or theirs, whatever share is held by the party getting divorced may be considered a marital asset. Any changes to or division of this share can impact all partners and even other shareholders, so it’s important to discuss it and build a plan that can protect everyone’s interests.
#2 Consider a binding financial agreement
While it’s not very romantic, a binding financial agreement that sets out what each of you is entitled to in the event of a breakdown is sensible. There is often a misconception that these agreements are adversarial, designed to keep assets away from one party, but done right, they are actually about protecting everyone’s interests.
Once divorce proceedings commence, it can be hard for any party to think with a clear head, and often the only winners are the lawyers. Putting a binding financial agreement in place at the start of the marriage or while the relationship is healthy means you can discuss your finances rationally and decide on a fair split if you were to go your separate ways in the future.
If you are a business owner whose spouse isn’t involved in the business, chances are you want to keep the business intact and on your side of the ledger. This might be about making other concessions in the interest of a fair split, like reducing your share in the family home or other assets, for example. Of course, it is important to get financial and legal advice when making these agreements to ensure you are protecting everyone’s future – including your own.
#3 Keep business and family matters separate
One common mistake a business owner can make is to give their spouse a shareholding in the business. It might be done as a romantic gesture, or sometimes it might be suggested by an accountant or business advisor for tax reasons, but it can be a short-sighted strategy.
If you give a spouse shares in your business, there is no way to separate these shares from the division of assets. Even if the divorce is amicable, it’s likely to lead to some problems and changes for your business.
Of course, if your spouse has a genuine stake in the business, it’s a different situation. However, it’s always a good idea to get financial and legal advice before changing the ownership structure of your business, regardless of the circumstances.
#4 Keep accurate business records
Keeping your affairs in order is important as a business owner, and it may prove critical in the event of a divorce. Understanding the financial position of your business in detail and having the documents to support this will put you in a better position as these records will play an important part in any divorce proceedings.
Trying to get these affairs in order while managing the emotions and stress of a divorce isn’t a good idea. It’s time consuming and doing it this way can open up more opportunities for human error or even questions as to the accuracy of your documentation.
#5 Get an expert team in your corner
From your accountant to your lawyer and your financial planner, you want a team of experts who can work together to help you achieve your goals. At Apt Wealth Partners, our experienced advisers work closely with you and your other professionals to take an integrated approach to your finances.
Of course, we all want to go into marriage trusting that it will be forever, but as a business owner, it’s also important to ensure you can protect and grow your business into the future. You can (and probably should!) go into any pre-emptive planning believing that you won’t need it – but if the day comes when you do, you will likely be very glad you have it in place.
If you are a business owner looking to protect and grow your business and your finances, contact Apt Wealth Partners to discuss how we can support you to live for today while planning for tomorrow.
General Advice warning
The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.
