Small Businesses and Divorce – the Financial Impact
Divorce - a Monetary Disaster
After another night where I helped (without payment as to save money) at my partners business, it struck me again: the financial consequences of a divorce can be devastating for both women and men! Stress, embarrassment and in many cases, homelessness happen far more often than we can imagine.
Usually it's women complaining how difficult keeping their heads above he water. No doubt there are many who have an immensely hard time. However, the costs are not just high for women. Many men are left not just without their former wife, their kids, their home - but they can hardly keep themselves and their business afloat.
Small Businesses - Critical for the Economy
Governments world-wide are trying to promote enthusiastic entrepreneurs to start their own business as they are a critical component to the vitality of local economies which needs to be sustained. As small businesses are established, opportunities arise, and new jobs are provided as staff is being recruited.
In the USA the definition of a small business (LLC, Corporation or a sole proprietorship) is a business with 500 employees or less (according to the US SBA). Small businesses are constituent for the United States largest firms and represent 99.7 percent of all employer firms.
But most small companies do not reach 500 employees (at least not in the beginning) and are quite solely owned and assisted by a few employees. Given the fact that this owner latterly owns all responsibility (a blessing and a curse), the juggling between work & family is quite intensive and not easy in the least. Combining marriage, family, a social life is one of the biggest challenges for these people.
Death Did Not Do Us Part - The Divorce Did
So, what happens if there’s a major change at the home-front such as a divorce? As much as we want to think we remain a couple till death do us part, in practice, 40 till 50 percent of marriages in the USA ends up in divorce. Obviously many of those own companies of their own.
Let’s put all legal issues aside that come with a divorce and dive into the following scenario; you’ve handled all matters with your ex and have come to a settlement. Odds are likely that you don't want to run the firm with your ex. So you've either paid her a specific (usually large) sum to buy her out and get the business is back in your hands. You have settled on the days you are supposed to be with the kids - so hey, both parties can move forward with their life no?
Except buying out your ex of your small business means you probable must pay a fairly large sum of money - obviously not always immediately available as your business still hasn’t reached the size of e.g. Apple. Most small business owners thus will have to take a loan. Adding the alimony to this causes that soon the basic income you were getting out of your small business is significantly reduced. The fact you have to redecorate your new apartment (new appliances, furniture, utensils, bed-sheets etc.), force you to face a significant accumulation of costs.
There are only 24 Hours in a Day
And what happens time-wise? As you were still happily married, the daily tasks of running a family were (in the ideal scenario) executed by both partners. Paying the bills, doing the groceries, cleaning, washing and handling of the kids was done in collaboration - being single this suddenly becomes a far bigger and time-consuming part of daily life.
If you were used to leaving your company in the late(r) hours, you soon find yourself having to leave in time or even quite early; who will cover for you? What are you supposed to do when exactly on the day you were supposed to spend time with the kids, one has a major fever and you’re forced to stay home? Do you have extra employees that can cover for you or is hiring proper reliable personal more difficult in practice and can you cover the extra costs that come along with it?
And what if you own a restaurant? Or own a pet-clinic with emergency service? What if you work until late hours, who will cover for you? Divorce or no divorce - small kids still require a lot of attention. Unless you feel comfortable to outsource and have the greatest baby-sitter in the world handling the parenting for you instead. But, here we have the same issue: a baby-sitter requires payment - extra costs in a time you already need every dollar as it is …
Homelessness Due to Divorce
Taking all the previously mentioned in consideration, it’s not strange many divorcees get into major financial trouble. Getting over the emotional shock of a divorce is one thing (and yes, it's still a shock for all those involved despite the fact divorces are extremely common nowadays). Getting yourself out of the financial hardship is not less difficult, it requires time and “financial wisdom” in every aspect.
It is said that in the UK 11% of all divorces leads to homelessness, a worrying and sad number as people should not have to stay stuck in an unhappy marriage for financial reasons. This number shows the financial consequences are and should be an essential element to consider before making the decision to get a divorce. Even more so when you own a small business.
Get a New Partner - in Business
An often-heard solution is selling 50% of your business-share to a new (business) partner, providing you with an immediate sum to cover the many costs and the opportunity to divide work in such a way you're available for your kids and can still maintain being a business owner. For legal reasons it is clearly best to do so after the actual divorce and include a clause in your divorce agreement ensuring your soon-to-be ex has no legal rights to any future profits of your small business …
As a single widowed mother, I’m very used to handling matters alone. I know the time, energy and financial hardship it requires. For years, it forced me to be an employee instead of being my own boss. My status has made me very aware of the financial burden widows and divorcees have when raising a kid alone or semi-alone. Not being able to share the daily worries, laughter that come with a family is hard enough. I’m not against divorce as I think we all deserve to be happy. But keep in mind the grass seems greener at the neighbours. And considering both the emotional as well as the financial aspects before diving into deep water, might be worth everybody’s while.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2018 Amatus