There are many success stories of couples building iconic companies in harmony. But, it doesn’t always work out that way and, in the midst of a divorce or separation, owning a business together isn’t easy.
The good news? You’ve managed it this far! In my experience with clients, co-owning a business during the turbulent end of a relationship (before you officially split) is the hardest part. Now you can take proactive steps forward.
Forensic Accountant and Business Valuer, Jenny Letts works predominately in the divorce world.
“My role is more often than not to be an Expert in the Family Court, to value businesses when couples are going through a divorce,” she says.
So, what happens if you co-own a company with your ex? Here, Jenny shares the first steps and common speedbumps.
Dividing a business asset in a divorce: where to start?
Generally, the first step is working out how much the business is worth. This is best undertaken by an expert who specialises in business valuations. Much like Google Maps, the directions work best when you have a destination to work towards. Once you know and understand the Business’s worth, then you can start to work out different scenarios as to what each party would like.
Co-ownership, buyout or sell: how do you know what's right for you?
Much of that is going to come down to you and the relationship that you have with your ex-partner, plus the dynamics of working together moving forward. For one partner to either sell or buy, this is going to involve a valuation as well as either speaking to a bank or finance department or a broker. It is also needs to be considered that businesses aren’t generally sold as quickly as real estate – it may take years for the right buyer to walk through the door.
What are the hurdles to watch out for?
I’m often asked: why can’t my accountant value this? Well, they may well be able to, however business valuing is a tricky process and it take a great deal of experience to be able to apply the right approach and methodology to every individual business.
Every business operates so very differently from the next one, even those in the same area and industry; one restaurant can have a waitlist and the one next door have difficulties filling five tables each week night. A good valuer will know which questions to ask and how best to apply the right methodology to achieve the correct value.
It also helps to have an independent expert, who only specialises in valuations as opposed to the Business’ accountant who may feel a bit overwhelmed at the task.
Should you discuss it with friends or family?
More than likely you are going to need the support of your family and friends to help you get through the divorce but also the property settlement. You may also benefit from speaking to a Financial Planner to work out what lifestyle you can both have moving forward and what you will need in terms of assets or income to be able to make that a reality.
Is it really possible to continue to run a business as ex-partners?
It is possible, and I have had a few clients over the years that have been able to do that. I have also had other clients, where the non-active spouse has stepped up and taken over the business. I’ve also had clients that have split the business and taken different departments for their own.
If you are considering continuing to operate the business together after a separation or divorce, speak with your accountant as to how best to structure your ownership. There may be tax issues and stamp duty issues in transferring assets.
Should you announce it to customers?
A lot of business owners now lead very public lives, thanks to social media. That is a very personal subject, and I believe it would come down to knowing your customers. Most business owners I assume would be quite wary of risking their brand and reputation so may refrain from divulging such private information. It’s always a personal choice!