The Business of Marriage: Considerations for Married Business Owners

Most business owners will tell you that the time they put into running their company makes it almost impossible to distinguish their professional life and their home life.  For married entrepreneurs, this can create unique challenges.  Not only do the customary ups and downs of owning a business impact a marriage, but being married can impact how you own your business.  It is important to think about how your personal circumstances interact so you can avoid unforeseen consequence on factors like time management, ownership, and distribution of liability.

Here are a few things to consider if you are a business owner who is married or plans to marry:

1. Is your spouse involved in your business? Your spouse could be an active partner and co-owner, an employee, and occasional volunteer, or the least bit interested in the day-to-day running of your company. 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 formalizing ownership.

2. Where do you and your spouse live? State laws affect how your property rights are handled—especially business rights in the event of a divorce. 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” 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 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. You should also examine what your company’s governing documents reflect.

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 opportunities for a disgruntled ex-spouse to fight for the right to manage the business or force its sale.

Littleton Legal Can Help

If you are married—or intend to be married—and run a business, there are significant legal issues you should consider. We have a team of skilled professionals who can help develop a solid course of action for you and your business. Call Littleton Legal today at (918) 608-1836 to schedule a consultation.