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Planning a wedding is an exciting and busy time in anyone’s life, as there is much to consider. For small business owners, there are some practical concerns and worries as well. Here are some thoughts on some business planning to conduct before the happy day.
When an individual gets married, by operation of California law, certain statuses and rights change. What was once owned by the individual can now very quickly become jointly owned. Likewise, the law of inheritance makes the spouse the primary recipient of property in the event of an untimely death. These facts apply with respect to the ownership of small businesses. Further, under marriage and divorce law, if the marriage is unsuccessful, then any property — including shares or ownership units of the business — are subject potentially to the orders of the divorce court. Your trusted business attorney can assist with drafting a new Buy-Sell Agreement or reviewing one currently in place.
In order to protect your small business and to protect anxiety that might be felt by your business partners, it is important to have a buy-sell agreement in place prior to the wedding. If there is one already in place, it is important to review the buy-sell to ensure that it accomplishes what the owners need. A buy-sell agreement is a contract — often free-standing but also can be part of the operating agreement for an LLC or the bylaws for a corporation — between the owners of a company governing procedures for what happens in the event of a divorce, death, or disability of an owner. Basically, if one owner is unable to continue as an owner, the others want to have flexibility to not be in business with the spouse of that owner. Maybe the spouse is a perfect business partner; maybe not. But all the owners want flexibility to “keep” the business or force a sale. Just as importantly, the spouse might want to “cash out” his or her ownership portion of the business. Again, procedures and flexibility are desirable.
No Commingling Policies
In general, there should never be any commingling of personal and business assets. As an example, no owner should ever deposit personal funds into the business account or take money from the business account for personal use (other than draws and paychecks). These no-commingling policies should carry forward after the wedding and the spouse, as an example, should never become a signatory on company accounts.
Policies Regarding Draws and Use of Company Assets
With a new spouse, there may be a tendency for the newly-wed owner to want/need more income and resources from the business. This may lead to an increase in draws from the company account or an increased use of company resources like a company car or other physical assets. This may or may not be a problem for the business, but it is probably wise to create or review company policies with respect to draws and use of company assets.
Discuss Year-End Bonuses
In a similar vein, it is probably useful to have a conversation among the owners about upcoming year-end bonuses. The soon-to-be-married owner may have expectations of an extra-large bonus. By contrast, the other owners may want the standard bonuses knowing that reserves and cash-flow are important for maintaining revenue growth. At minimum, all the owners should be aware of the possible differing expectations and be prepared for arguments and friction. Or, conversely, maybe there are no new expectations, in which case, some worries can be put aside.
Family Leave and Health Benefits
A quick review of health and other insurance policies is also in order. Most spouses are entitled to be covered under employer-provided health insurance. Also keep in mind that family leave issues may become more prominent and important. Employees have these statutory rights even if not married, but marriage tends to raise the profile of these issues.
Contact San Diego Corporate Law
For more information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters, and he proudly serves business owners in San Diego and the surrounding communities. Contact Mr. Leonard by email or by calling(858) 483-9200.