“They usually have two tellers in my local bank, except when it’s very busy and then they have one.”
— Rita Rudner
Earlier this month, our office successfully brokered the sale of a profitable retailer who has been in business for over 20 years. That by itself is not unusual.
What was a little unusual is that the sale was consummated with a seller who had recently gone through a divorce. What was even more unusual was that the seller had gotten cooperation from his former spouse.
Oftentimes that can be like trying to have your child quietly and promptly exit the playground area at a McDonald’s. Usually, there is a lot of kicking and screaming involved.
Fortunately, the good news in a divorce is that it seems, in the majority of cases, judges do not hand over the company’s keys to a spouse. The bad news is that the spouse will be awarded cash or other awards to compensate for the company’s value.
This can cause severe repercussions for the owner when the financial settlement that is awarded is so generous or onerous that it impairs the ability of the company to survive.
For many owners, pulling a couple of hundred thousand dollars out of their business could significantly hamper their ability to cover expenses such as payroll, accounts payable or other financial responsibilities.
When this is not practical, imagine then being forced to sell your business in order to come up with the cash to pay for the divorce settlement.
To compound matters, sellers who find themselves in this predicament are also at a severe disadvantage because when a business is forced to sell, whether is it is through marital discord or some other negative occurrence, their options suddenly may be limited.
Consider the recent example of the estranged owner who was presented with two competing offers for his business. Much to his dismay, he had to accept the lower bid because it was an all-cash deal.
Why? Because the judge agreed with his ex-wife and her attorney who argued that it was not fair to have her accept the financial risk associated with the higher offer which contained a provision for an extended payout.
This is why it is important to have agreements in place that will be fair to both spouses and ensure that the company will survive the divorce. However, drafting such a document can be an unpleasant thought.
Planning for a divorce while you’re happily married may seem pointless and emotionally challenging. I suspect this rarely happens because spouses are afraid that if they do enter into such an arrangement, it may jinx them or somehow make them start acting like there are problems in their marriage. But not planning for the possibility of a breakup can create even bigger problems down the road.
An even more uncomfortable position may be for a sole owner of a business who is engaged to be married. The same rules apply. Whatever the size or profitability of the business, it would be beneficial to have an agreement that spells out what happens if the marriage fails.
Since I’m a business broker and not a lawyer, an accountant or a marriage counselor, I would suggest that owners discuss these matters with a professional who can offer sound advice.
As emotionally unpleasant as it may be to contemplate, divorce planning should be an integral part of overall business and personal financial planning for business owners.
Whether you decide to act on something like this or not, it is better to make sure you understand your options so you can make an informed decision.
Buzz Harris, a Licensed Business Broker with The Liberty Group of Nevada, writes a recurring Voices column for the Northern Nevada Business Weekly. Contact him at 775-825-3948 or via email at BHarris@TheLibertyGroupofNevada.com.
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