(rock music)
- Hello and thank you for joining us for Smartfem TV.
Business has it's ups
and it's downs, but one of the biggest challenges
businesses face is divorce.
I'm joined now with Judge Lynn Toler.
And we're gonna be talking about divorce
and it's impact on your business.
Divorce is tough but it can spell disaster
when it comes to your business.
Today we're gonna be discussing some of the challenges
in the situations that arise when couples are divorcing
and in a business relationship.
All the while keeping in mind
your stake as a business owner.
Many of the questions came to us from our viewers
and members of the community.
And today with the help of Judge Lynn,
we hope to address some of these concerns.
Lynn, let's get started!
- Let's do that.
- First question we have is
will my spouse be able to take half my business
even if it's in my name?
- Here's the thing, when you're talking divorce,
you have to establish two things.
Number 1, what kind of state do you live in?
Which is a community property state, they're A double,
Texas, Louisiana, Arizona, California
or equitable distribution states.
In a community property state,
marital property is divided 50/50.
Now, the next, which leads us to the next concept
and the next, most important concept
is marital versus private property.
Marital property is property that is
considered owned by both people.
Separate property is property that is not.
Let me give you a good example.
You get an inheritance from your parents.
That is separate property.
You start a business before you get married,
that is your business.
However, that separate property can be deemed
marital property if the business grows
during the course of the marriage
and or if your spouse contributes
in some meaningful way to that.
But as it grows within the context of marriage,
that increase in value can be deemed marital property.
Does that mean he gets half?
Not necessarily.
If you do it the right way,
you manage to divide your assets
without dividing the company.
Because the company in it's solid state
is the most profitable.
Ya know what I'm saying?
And you also don't want to have two owners
of a property who don't like one another.
'Cause that doesn't work even if you're not married.
- Good point.
- So, the idea is to keep the business intact
but to divide assets in a way that allows the company
to be separate but still allow both parties
to get an equal share.
- Now is it, or when is it appropriate
to talk about divorce with employees?
- Ya know, it depends on what kind
of company you're running.
If you're a small, close company with employees
they're gonna know a divorce is coming.
They wanna know what's happening.
They're gonna know you guys aren't getting along.
I think it's always appropriate to talk to them about it
in a small company 'cause they're already gonna know.
Rumors are gonna go around, problems are gonna exist.
People are gonna be trying to move money
that may not be, should not move money,
so you should tell them as much as they need to know
but as little as you can get away with.
You want to tell them, "Yes, we are going
"through a divorce.
"We anticipate that the business will stay the same
"and you really shouldn't worry about it."
The accounting department ought to know, ya know.
If both people are not signatures on a check,
you have to keep that in your vision
so you know that nobody is moving money inappropriately
or raping the bank account or the business.
So the accounting department really needs to know.
But tell the employees enough to keep them comfortable
but don't get them in your business.
- Next question we got was,
what can I do to protect my business?
Is a prenup or a postnup gonna help the situation?
- Absolutely.
I jump up and down
everytime somebody says prenup or postnup.
I really do believe in those things.
And now though prenups and postnups
are not concrete, I mean they're not unassailable.
People go to court and get them changed all of the time.
But they are a good place to start.
Especially if you own your business
before you get married.
You put it down on piece of paper.
It's private property.
It's considered separate property.
It is my property and should this marriage end,
that property, no matter how much it has grown,
remains my property.
Now, of course, the husband or the wife can go to court
and try to fight that.
And sometimes a court will say
because of how the company was run
and how much the spouse did,
he does or she does have an interest in it.
But get a prenup or a postnup, just to,
it doesn't secure you completely
but it gives you a better hand to play.
- Now we've been talking about small business owners.
What happens if the company's a little bit bigger
and you have shareholders?
- Well, I mean, it's a little easier
when you have shareholders.
If you're talking about a larger corporation,
you have shares, he has shares,
those things can be separated.
And if it's a larger corporation
or a public corporation, those shareholders have rights
in the continuation of the business
so there are other people with rights and obligations
that makes it easier.
You can decide how many shares
that you're gonna take,
but if other people are owning shares,
the company doesn't belong to the two of you.
Those shares do.
So that's probably going to be somewhat more simple
to deal with because it's not owned by the two of you.
It's owned by all the shareholders.
Will there be any fighting?
No doubt about it.
But it depends on how many shares you want
but there are more safeguards that way
because there are other shareholders
and the business must be run in the interest
of all the shareholders and other shareholders can
sue the corporation if at some time,
either party is doing something that is not
in the best interest of the company.
- Okay, this is funny and you probably deal
with this on Divorce Court.
How do people go about having a divorce
and still manage to run a company together?
- Some people manage to do that.
Some people really really do, rarely does it happen.
I think what a lot of judges like to do
with a business like that is to have...
you have to determine the value of the business.
And the value of the business is just not it's assets,
it's its's good will, it's it's reputation,
it's it's ongoing service, it's it's receivables.
All of those kind of things.
You make a valuation of that and then if one party
who mainly runs the business can pay out over time
what is determined to be their fair share of that
so that person runs the business themselves,
that other person gets paid every month or yearly,
the amount that will add up to their portion
of the value of that business.
That's the best way to do it.
Having two people run a business who don't like each other,
it's difficult enough to have partners
who don't like each other, who aren't married,
but anything is possible.
Ya know?
Money is money and emotion is emotion.
And if you can detach your money from your emotion,
and that money is good enough,
you can work your way
into a means by which to stay together
but you guys gotta go to marriage counseling
or something to learn how to detach yourself
because I'll get divorced, my husband and I
are running a business, he gets a girlfriend,
I might get frantic.
So, typically, we like to see
one person have the business,
the other person get paid out the value
but it is possible.
I've heard it work
and I've heard people have been able to do it.
But it's an emotional business that you have to deal with.
And that emotional business is much difficult
than the actual business.
- Well you know one of the things that you said
in your book is that marriage is a business.
- It is.
It is, it really is, and you have to...
And that's what I warn women about a lot,
is don't distance yourself from the money.
Even though you're not day to day on the books,
you need to understand what they are,
you have to understand what's coming in,
what's going out and sit down
and have him explain it to you
and don't let him say, "Don't worry about it."
Say, "I am worried about it and I need to know."
And you do need to know.
- Our next question is will my business borrowing power
be diminished after a divorce?
- Depends on how the business was set.
Ya know if the business maintained it's own
trajectory without being divided,
then it shouldn't affect it at all.
All the bank is worried about
is getting the money back that it lent.
And if the receivables are still good,
if the bills are being paid,
that's not the divorce itself.
It's not going to change that.
It's how you behave within the context
of the divorce that may or may not injure the business.
That's what's gonna change your credit score.
That's what's gonna change.
- So Judge Lynn, moving forward with the divorce,
how do you keep communication with the employees positive,
especially if it's a really contentious divorce?
- Ya know, that's a very, very difficult thing to do.
I think that if you can at all manage it,
when you sit down, if you have a divorce mediation,
is a very good idea, I think.
Especially if you are in the midst of a divorce
that involves a business.
And to sit down with a mediator
so both of you could understand
that what is in the best interest of the business
is in the best interest of both of them
and so they can have something that they decide
to say to the employees jointly.
"Yes, we are going through a divorce,
"it should not affect you", or whatever's going to happen,
or, "He's gonna take the business
"and I will be out of the business."
But, it's a difficult thing to do and
it's more of an emotional trick
than it is a business trick.
- Now would you say the biggest part of couples divorcing
that maintain a business together,
do you think it's the emotional upheaval
that drives it, drives businesses into the ground?
- Oh, absolutely.
I think that you're angry, you're upset,
you're both trying to run a business
and when you say business that's a broad term.
You've got limited liability corporations.
You've got partnerships.
You've got Subchapter S Corporations,
and sometimes a corporation doesn't make sense
or a business doesn't make sense absent one of the parties.
I am a business and my business
is loaning me out to FOX.
Now, for my husband to own it wouldn't make a lot of sense.
So, you have to take all of those things
into consideration and when you do create a business
and you want it to maintain that separate business,
cut yourself a check as opposed to...
make yourself an employee of that business
as opposed to just putting your money
back into the company because that's how
it becomes more marital property as opposed
to a separate entity.
To distance the company
as much as you can
from the marriage itself.
- I see.
Do you think that's one of the biggest problems
that people are excited.
They get married but they
really don't really have the hard conversations
about running the business before they get into it
and then, well, the divorce rate's 57%, so.
- Well, actually it's way lower than that now.
- It's in the 40's, yeah.
- Oh, good.
- It peaked and it's now down again.
Couples don't have conversations about money
before they get married anyway.
They don't whether they have a business
or don't have a business,
because it's very unromantic and presumes
that the marriage will end at some time
and you don't want to think that in the beginning.
Complications arise when you create a business
once you're already married.
I mean that's when it gets very, very complicated
because both of you have contributed
in some substantial way.
Usually to the economics, the performance,
and how it's gonna do and those are difficult.
Now you can use a postnup agreement
if you've created a business together,
you can use a postnup agreement to guide you
if the business is going to go asunder.
I'd just say, keep the business running.
Find the assets somewhere else
or pay that other person out over years
as opposed to tearing the company apart.
You gotta chase the dollar, not the...
not the anger.
- Oh, love that.
So, and if that doesn't work out,
we just send them to you and marriage boot camp.
- Yeah, and the worst thing in the world,
I always tell this to people,
the only thing worse than getting divorced
is having a third party who doesn't know you,
doesn't know your business,
say, "You two can't decide.
"I'm gonna order, you gotta liquidate the business
"and take half and half."
The last thing you want is the judge
to make those decisions about something
that's so eminently personal.
So put aside how you feel
or in the case of women,
which often is my concern,
he's still got one foot in your emotional house
and you're used to relying on him
for his economic decisions for that
and he's still saying some nice things to you.
So in the back of your head, maybe...
I've had a lot of women, "Well my husband said that."
Never take advice from the other corner.
You're fighting in the ring.
You take advice from your corner, not the other corner.
"Well he said it would be easier if we."
I've had women say that to me all of the time.
Once you've gotten started taking divorce,
his ideas, his thoughts--
- Out the door. - Your attorney.
Absolutely.
Attorney to attorney.
Can't speak about it.
- Wow.
Judge Lynn, being that we're talking on Smartfem,
what are three tips that you would give
the women business owners before entering in marriage?
- Okay.
The first thing that I would do
is make sure that the paperwork is in order.
And even though you in love and he's wonderful
and you want to cook for him and all that kind of stuff,
you make sure that the paperwork is put together
in such a way that you see it as separate property
and that when you run your business
that it is separate property
'cause you want the business to continue
even though the marriage might end.
The second thing that I would do
is make sure I ran the business
like it is a separate entity.
I would cut myself a paycheck as opposed to
taking out money and assets from home
because that co-mingles the assets.
Once you start co-mingling the money
that he has and the household money
it starts to look like marital property
even if you wanted to treat it as separate property.
And of course, we'll look at it as you treated it.
Not as you called it, if you treated it differently.
And the third thing is, is always make sure
that you are ahead of your growth curve.
In other words, what happens when you're
a sole proprietor, when you start getting employees,
other things, benefit plans, all of those kind of things,
all of those things change as you grow
and you need to be ahead of all of those,
all of those economic challenges,
as the business grows.
- Oh, great advice, great advice.
This has been Lea Woodford, of Smartfem TV.
Thanks for watching.
And Judge Lynn, thank you so much.
- I always enjoy talking to you.
- Oh, it's always fun.