Both running a successful business and having a successful marriage require commitment and hard work. Operating a business as a married couple can present its share of challenges, but being devoted to one another as spouses and as 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.
The potential for blurred lines in a couple-owned business makes it crucial that the business relationship be treated professionally from the start. Before embarking on a new business venture, you and your spouse should have a solid understanding of what each of you brings to the venture, how to divide responsibilities, and what type of business entity you will form. Have proper written agreements in place to ensure that mechanisms exist to deal fairly and legally with any problems that may arise.
Family-owned businesses are common in the United States. The term “mom-and-pop” business is not always meant literally, but there are approximately 1.5 million businesses run by married couples nationwide.
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. This is a good first step for evaluating the type of business structure that you should have. If you plan on both being owners and taking part in the day-to-day management of the business, 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 important tax implications. Specific questions about ownership structure and taxation should be discussed 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—such as a partnership agreement or an LLC operating agreement—that spells out the management structure, the process for dissolving or leaving the company, indemnification, ownership percentage, and the process for adding new members.
You might also consider a separate buy-sell agreement that details how to deal with the sale or buyout of a spouse’s ownership interest. This could come into play during a divorce, the untimely passing of a spouse, or if one of you simply wants to get out of the business.
If you are not co-owners, and one of you is an employee, you will need a contract that stipulates job duties, pay and benefits, how and when the employment relationship can be ended, the dispute resolution process, and other employment terms.
It may be initially uncomfortable to treat your spouse as a business partner complete with contractual obligations. But clear written rules for the business are a 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.
To keep your business above board and professional, consider working with an attorney who can advise you on business entity structure, taxation issues, and contracts. A neutral and knowledgeable business attorney can provide a third-party perspective that sets up you and your spouse for long-term business success. Please give our office a call at (281) 218-0880 or schedule online here.
Hegwood Law Group