It starts out so beautifully, the business born of matrimonial harmony. But when divorce intervenes, there's nothing messier. "The rules of an ordinary partnership will not apply in divorce," warns Helene Brezinsky, a partner at Rosenman & Colin, in New York City.
The courts recognize that the dynamic between married business owners is more complex than the one between unrelated partners. So each case is resolved differently -- in a way that may not correspond to the official ownership position of each spouse. Here are four common practices in jointly owned husband-and-wife businesses and how they can backfire in a split-up:
1. Cosigning debt. Naturally, it means you're both responsible for paying the loan back. In a divorce or a business failure, however, one partner may decide to declare bankruptcy, which sticks the other one with the entire IOU.
2. Departing from the norm. Couple-owned companies are rife with activities that don't necessarily make business sense: deferring salaries, making gifts of stock shares, letting tax considerations drive business decisions. If the business record isn't clean or doesn't exist, it's much harder to persuade a judge that the ownership arrangement on paper should determine who gets the spoils.
3. Depending on prenuptial agreements. Recognize the limits of such agreements in many states. Over time each spouse's contributions to the company may change radically, or the value of the business itself may vary widely. Unless your prenuptial agreement has been recently reviewed by your lawyers, it may not be ironclad.
4. Subordinating one partner's future to another's. An extreme example: the photographer whose husband decides to manage her. Here the wife is the business, and the husband is extremely vulnerable in a breakup. -- Ellyn E. Spragins