February 9, 2011

Divorcing? Own a business? Let’s talk…

About the most damaging, anger-invoking, and confusion-inducing words that a you as a business owner can hear from your spouse are anything along the lines of “I no longer want to be married to you”. Consider these sobering statistics (courtesy of divorcerate.org): The overall divorce rate in the US is close to 50%. The divorce […]

About the most damaging, anger-invoking, and confusion-inducing words that a you as a business owner can hear from your spouse are anything along the lines of “I no longer want to be married to you”.

50% of married couples will eventually see this.

Consider these sobering statistics ( courtesy of divorcerate.org ):

The overall divorce rate in the US is close to 50%.

The divorce rate for first marriages is 41%

For 2nd marriages, the rate is 60%

For 3rd marriages, the rate is an astounding 73%.

With small businesses generating the overwhelming majority of the GDP in this country (close to 80%), there is a very good chance that someone who you know is considering a divorce, owns a business, and is not sure about how to move forward.

I spent the last 2 days testifying in Travis County court on a divorce case where both the husband and wife owned businesses, and have a few words of wisdom to pass along as it relates to the ramifications for your business if you ever find yourself in this situation.

Consult a good attorney. Quickly. In addition to the interpersonal issues that need to be worked out, a good attorney can help you navigate your way through a confusing minefield of issues relating to your business.

Hire a business valuation specialist. Quickly . As the court proceedings and scheduling orders begin to take shape, it becomes CRITICALLY important for you to have all of the information regarding your assets as quickly as possible. And for most people, their interest in their business is their most significant asset. You don’t want to get on the wrong side of a judge for not having a value for your business in time for the opposing side to review it, according to the court-mandated scheduling deadlines. In a worst-case scenario, your expert’s evidence might not get the chance to be heard in court.

As quickly as possible, get information on your opposition’s statements of value regarding your business. You’re obligated to providing them with the information that their specialist needs to formulate an opinion of value regarding your business. But you absolutely need to know what their opinion of value is, and you need to have that determined in time to be able to refute or dispute it if necessary.

Maintain a clean set of financials. You want to do this anyway, obviously, if you’re running a business; but as it relates to this type of situation, you need to be able to get the relevant information to your valuation specialist on time, without having to scramble to do so. And on a related note,

Be able to speak intelligently about your financials. There are several line items on both your balance sheets and Profit and Loss (P&L) statements that a valuation specialist views differently from the traditional way of viewing them, and so you really need to be able to explain the story behind all of the numbers that appear on your financials. It can make a dramatic difference in how your business is valued.

Ensure that your business is system-driven, and not people-driven. What I mean is simply this: ensure that the mechanisms are in place for employees to know what they need to be doing from one day to the next, without having to be constantly monitored/instructed/micro-managed. In addition to this being a good idea in principle, it will help to ensure that your business does not suffer adversely while you are distracted  as you go through the process of a divorce proceeding.

The D-word is scary, and it causes several upheavals in your life. But there are ways to minimize/mitigate its impact on your business, if you are proactive, strategic, and tactical about the process. If you have any questions on this issue, please feel free to contact me.

A few thoughts: