Think the hit you took in the market last year was bad? How about this for a sucker punch: Just as your business starts picking up, you get a love letter from your spouse's attorney telling you that your marriage is over. Depending on what the judge decides, you may have to kiss your house, your 401(k) plan and even your company goodbye.
For many entrepreneurs, this kind of heartbreak can become all too real. And whether you own 100 percent of your business or your unhappy spouse is also your business partner, you may find yourself having to sell assets or take on debt to break up the company you worked so hard to build. Even after the pain of the divorce subsides, it may take years to dig out of this financial hole.
Let's face it: It's not easy to be married to an entrepreneur. While stories abound of scheming business owners who hide money in offshore accounts so that their long-suffering spouses will get little or nothing, it's often the hard-working entrepreneur who gets the shaft. Unlike a house or a stock portfolio that can be liquidated within weeks or months, most businesses are small, privately held and not worth much to anyone except their owner. As a result, divorcing couples often bring in an appraiser to value the business, an exercise that can cost as much as $30,000 and leave both spouses without much to show for it.
Just Like Starting OverOnce your divorce is final, it's time for you as an entrepreneur to start rebuilding your financial nest egg--no matter how much or how little you're left with.
The first step, says financial planner Stacy Francis, is to reduce your personal and business expenses and start socking away extra cash in a rainy day fund--typically six to nine months of living expenses. The best place to put that money is in an FDIC-insured high-interest savings account, she says. The next step is to rebuild your retirement account. Whether you have a 401(k), SEP-IRA or Keogh plan, you'll get more bang for your bucks if you can salt them away tax-free and withdraw the money when you're older and in a lower tax bracket.
But with the housing market in the doldrums and the economy struggling to recover, dividing business assets isn't always so simple--even if the entrepreneur is willing to take his lumps and move on.
"In today's market, you may be under water on your house, and your business might not be throwing off a lot of cash," Francis says. "This means you've got to get creative."
If you can't afford to give your spouse a lump sum payment, you may be able to persuade him or her to accept a steady stream of payments over time or a percentage of future proceeds once the business is sold. If you and your spouse own and run the business jointly (and if you can still bear to be in the same room), you may want to continue just as you did before, sidestepping the valuation issue altogether.
Whatever the two of you decide, it's best to find an amicable solution quickly, Francis says. One of her clients spent so much money trying to figure out where her entrepreneur husband had stashed his cash that, after paying her lawyers and accountants, she ended up with a fraction of what the business was worth.
Of course, the best way to protect your assets from the ravages of divorce is to make your spouse as high a priority as your business. A bouquet of roses on Valentine's Day or a candlelight dinner with chocolate-covered strawberries would probably be less expensive-- and a lot more fun--than giving away the store to lawyers and forensic accountants.
Rosalind Resnick is founder and CEO of Axxess Business Consulting, a New York consulting firm that advises startups and small businesses, and author of Getting Rich Without Going Broke: How to Use Luck, Logic and Leverage to Build Your Own Successful Business. She can be reached at email@example.com or through her website, www.abcbizhelp.net.