Upon first glance, starting a business with your spouse can seem like the ideal opportunity. You get to spend more time together, make money, and build your own company with someone you implicitly trust. If you have an amazing marriage so you should be just as successful at running a business together, right?
Unfortunately, it’s not that easy.
Just because you’re compatible in life and love doesn’t mean you’re going to be compatible in a working relationship too. The rewards can be incredible, but if things go wrong, there is the potential to ruin both your business and your marriage.
Though running a business with your spouse can be just as – if not more – challenging than maintaining a marriage, plenty of people have done it with incredible results. The following four tips are a few of the things that set the most successful couples apart from the rest.
1. Clearly Define your Roles and Responsibilities
One of the biggest areas for potential conflict is when you and your spouse try to run every area of the business without clearly defined roles and responsibilities. This unstructured arrangement is practically guaranteed to cause arguments as each spouse seeks to do things his or her own way. It’s also extremely inefficient and fosters needless redundancy, which wastes both time and energy.
To avoid this, divide up the decision-making power, tasks, and responsibilities in a way that takes advantage of your individual strengths and personalities. By clearly defining your roles based on areas in which each of you naturally excel, your differences can serve to complement, rather than impede, your success as a business.
2. Put the Terms of Your Business Relationship in Writing
From defining your individual roles and responsibilities within the business to stipulating how the company will be dissolved should you get divorced, every agreement you and your spouse make about the business must be put in writing. Even if you trust your spouse more than anyone and have a mutual understanding about how things should be done, put it on paper anyway.
Just like taking vows and signing your marriage license solidified your romantic partnership, you want to treat your business partnership with an equal level of formality. All terms and conditions of your business ownership, operation, and dissolution should be laid out in properly drafted legal agreements and signed by you both in advance. The very process of creating such agreements will let you know if you’ll be able to work together to build a business.
Because such agreements are so critical and often quite complex, never rely on generic business contracts you find online. Whether you need new agreements created or have existing ones that need review, we can ensure the agreements governing your business relationship are solid and current with our state’s laws. And we can help you navigate with ease the inevitable conflicts that are sure to arise in the process.
3. Create Separate Workspaces
If you’re in the beginning stages of marriage, spending every waking hour together might seem like a wonderful proposition. Yet in reality, it’s not healthy for any relationship, business or otherwise. No matter how much you love your spouse, working long hours together each day and then going home and spending your free time with the same person can actually weaken your bond rather than strengthen it.
This is especially true if you’re working from home where the lines between work and home life can get blurred to the point of vanishing altogether.
To remedy this, you should consider establishing separate office spaces that give you the breathing room to develop your own work routines without stepping on each other’s toes.
While you may not be able to afford an outside office right away, consider using a co-working office space in the meantime. These communal work environments are often fairly inexpensive and provide an opportunity to get out of the house, meet new people, and maintain your sanity.
4. Choose the Correct Business Entity
For both liability and tax reasons, it’s crucial to choose the proper business entity for your company. If you run the business as co-owners without creating an alternate entity structure, your company will automatically be considered a partnership for tax purposes. Because partnerships come with complex tax-filing requirements and offer no liability protection for your personal assets, informal partnerships like this are often not the best entity for a family business.
In terms of both liability protection and tax savings, setting up your business as a limited liability company (LLC) with S corp tax status might your best bet. An LLC structure shields your personal assets from debts and lawsuits incurred by your business, and S corp status can offer unique tax-saving benefits, possibly even a straight 20% deduction on all of your company’s qualified business income, thanks to a new provision in the 2017 Tax Cuts and Jobs Act.
This said, depending on your circumstances, an LLC might not be the best fit for you and your spouse. There are a variety of other entity options to choose from, each with their own benefits and drawbacks.
We can both help you select the right entity for your business situation, and assist you in maintaining the administrative formalities required of certain business entities.
Protect Your Business — And Your Marriage
If you’re considering going into business with your spouse, you should both understand the potential problems, risks, and rewards that such operations can entail. Without taking the proper precautions, what at first seemed like a dream can quickly turn into a nightmare, threatening the survival of both your business and marriage.
We offer a complete spectrum of legal services for business owners 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 you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.