When a married couple starts or owns their own business, it can impact every part of their lives. It is not just the work aspect that has an effect on them; marriage also impacts how successful they are as entrepreneurs and vice versa. This causes many issues to arise—everything from considering time management to addressing liability concerns may come into play if you don’t think about how these two important institutions interact with each other in some way. Here are some things for any entrepreneur who plans on getting married soon might want to consider:
1. Is your spouse involved in your business?
There are a broad range of roles that a spouse can have in a business, from having nothing to do with the company, to serving as an employee, to being the co-owner of the business. This determination can impact
- the dynamics of your relationship,
- how you plan for taxes,
- the structure and liability of the entity,
- and the classification of your property.
Your spouse’s role in your business, particularly if it is a decision-making role, has a far-reaching impact and should be carefully considered before making any arrangements.
2. Where do you and your spouse live?
State laws affect how your property rights are handled—especially business rights. States vary in the way they treat property acquired during the marriage. The treatment of property is based on whether the state in question is a community property state or a separate property state. In a community property state, the court deems growth of a business that occurs during a marriage to be marital property, in which each spouse has a 50 percent interest. In separate property states, the increase in value of a business during a marriage is allocated based on the actual work done or contribution made by each spouse. Depending on the age and size of the company, this distinction may represent a million-dollar difference.
State law may also impact how rights are passed to spouses of entrepreneurs if they were to die, become disabled, or divorce. Some states, like Texas, statutorily protect business owners from unintentionally putting their spouse in a management or decision-making role by clearly articulating that only a financial interest can be acquired through death, disability, or divorce. Leadership and decision-making authority do not automatically pass. However, some states’ laws allow organizations and businesses to contractually create these protections via the operating agreement in limited liability companies or the bylaws in corporations. Business owners may also include these provisions in a buy-sell agreement. It is prudent to examine how your state’s law deals with these situations.
3. What is the current health of your marriage?
This question is critical because it can impact how you plan. If your marriage is on the rocks, you may want to strategically implement legal protections for your business. As described above, circumstances like death, disability, and divorce, if not handled properly, can open up opportunities for a disgruntled ex-spouse to fight for the right to manage the business or sell it and obtain a share of the property.
We Can Help
If you are married—or intend to be married—and run a business, there are significant legal issues you should consider. Call our office so we can help develop a solid course of action for you and your business.
This article is a service of Greg Gordillo, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Schedule your LIFT Session today!