Profit Minded

In business with your Valentine? Some unromantic advice

One in four business owners won’t have to make any extra effort to spend time with their Valentine today. They’re in business with the one they love. According to a Manta survey of more than 1,100 business owners, 28 percent of small and medium sized business partners are also romantic partners. More than half of those recommend the arrangement and some even tell Manta it has improved their relationship (though not necessarily their sex life).

Data from Manta's Love, Sex & Marriage in Business survey

Sounds nice, but the online legal services company Rocket Lawyer offers lovers a dose of reality for Valentine’s Day. If you’re mixing romance and business, Rocket Lawyer founder and attorney Charley Moore says you need to think about pre-nups, post-nups, and corporate governance. He points to some high profile business-couple disasters such as Bethenny Frankel and Jason Hoppy, whose prenup gives Hoppy no rights to any of the $39 million made in the sale of her Skinnygirl Cocktail line—a business he played a part in, and billionaire hotelier Steve Wynn who wound up as minority shareholder in his own business when he handed over half his shares to his ex-wife.

As unromantic as it might be to talk splitsville with Cupid in the air, Moore says there's a way to get through a divorce without breaking up your business. If you’re like the 13 percent of business owners in Manta’s survey who value their small business more than their personal relationships, this advice might be especially relevant to you. Here are Moore's 5 tips:

1. Be rational and consider compromise. A personal break-up does not have to signal the end of your business. First and foremost, both involved parties need to separate discussions concerning the business from any private and personal property squabbles. Protecting the business — its worth and integrity — should be a top priority. What this means is removing emotional involvement from the situation (as much as possible) and trying to think and act objectively as possible.

2. Hire an independent business appraiser. As part of the divorce proceedings, one of the first steps is to have you business valued. Remember that it is always worthwhile to hire an independent professional. When you and your partner are not joint owners, agreeing on a value can prove problematic. With the owning partner looking for a low value, and the non-owning partner looking for a high one, the valuation method that is used, whether asset-based, income-based, or market-comparables-based, as well as the discounts taken, can all be a matter of dispute.

3. Know the local law. While most jurisdictions will include the value of “enterprise goodwill” in a business appraisal, many will exclude “personal goodwill.” Some states will not even distinguish between the two types of “goodwill” and allow for valuation of both. To maximize your results, your attorney and your business appraiser should agree on strategy and valuation methods, while keeping an eye on current cases, evidentiary rules and statutes that could affect the outcome.

4. Think about role transition. If the spouses will continue to work together in the business, the divorce will probably require a change in roles. For example, a spouse may no longer work in the enterprise, as a partner, executive or board member. In that case, the replacement of the spouse’s skills and working out a transition of the business role may be part of the divorce process. If the spouse has a new role, it’s essential to clearly define (and potentially limit) the spouse’s decision-making powers in the company, in order to prevent future disputes. Whatever you do, be realistic about the ability to work together in the business. Often one spouse will need to step away for the business to continue operating.

5. Be transparent. Don’t make any big changes to your business during the divorce proceedings, like changing the business model to decrease revenue or appointing a new love interest to your board of directors. You’re more likely to send a big red flag in court, and you could jeopardize your business (and face steep fines if you’re hiding assets). It’s better to be honest and use legal strategies to reach a solution.

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