Running a successful business and having a successful marriage requires commitment and hard work. Many married couples find operating a business together challenging. But mutual devotion as spouses and business partners can bring higher levels of accountability and trust to the business. If you and your spouse can find ways to balance your work and personal lives, owning a business together can make your relationship even more rewarding.
Before embarking on a new business venture, you and your spouse should understand what each of you brings to the venture, how to divide responsibilities, and what type of business entity you will form. The potential for blurred lines in a couple-owned business makes it crucial that they treat the business relationship professionally from the start. Have formal written agreements to ensure mechanisms exist to deal fairly and legally with any problems that may arise.
As an Austin life and legacy attorney, I advise families on how to protect, grow, and transfer their assets on their own terms. From a governance perspective, it is much easier to build a family business correctly than try and instill professionalism after years of ad-hoc agreements.
Family-owned businesses are typical in the United States. One should not always take the term "mom-and-pop" business literally. Nonetheless, married couples run approximately 1.5 million businesses nationwide.
This is an excellent first step for evaluating the type of business structure that you should have. For the couple who shares everything—including a business—you probably have a good idea of how your skill sets overlap and complement each other. If you plan on both being owners and taking part in the day-to-day business management, a partnership, limited liability company (LLC), or corporation might make sense. One or both spouses can be managers of the business if they have an active role in its day-to-day functions.
The type of business entity you choose has significant tax implications. You should discuss specific questions about ownership structure and taxation with an attorney, but in general, the following rules apply:
When starting a business with a spouse, it may be tempting to rely on the trust you have built in your marriage to weather any storms. But if the marriage struggles or falls apart, this will inevitably affect the business. And even during good times, it is best to have everything in writing.
Depending on the type of business you form, make sure you have an agreement. This could be a partnership agreement or an LLC operating agreement. It should spell out the management structure and the process for dissolving or leaving the company. This agreement will also have indemnification terms, ownership percentages, and the process for adding new members.
You might also consider a separate buy-sell agreement. This agreement will detail how to deal with the sale or buyout of a spouse's ownership interest. This could come into play during a divorce. But it is also crucial in the event of the untimely passing of a spouse. Finally, you would turn to this agreement if one of you simply wants to get out of the business.
Suppose you are not co-owners, and one of you is an employee. In that case, you will need a contract. It will stipulate job duties, pay, and benefits. The contract will also determine how and when the employment relationship can terminate. It can also spell out the dispute resolution process, and other employment terms.
Treating your spouse as a business partner may be initially uncomfortable, complete with contractual obligations. But clear written rules for the business signal that you are both taking the business seriously. Your marriage is a contract, after all. Contracts are just a way to ensure that the parties are on the same page and equally committed.
Consider working with an attorney to keep your business above board and professional. Mixing business and marriage is challenging. A good advisor can help, however. They can advise you on business entity structure, taxation issues, and contracts. A neutral and knowledgeable business attorney can provide a third-party perspective. This can prepare you and your spouse for long-term business success. Please call or contact our office to set up an appointment.
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