Protecting Small Businesses in Divorce: Mediation Strategies for Entrepreneurs

Whether through nature or nurture, small business entrepreneurs and startup founders possess the vital ability to separate emotions from facts, enabling them to rationally address challenges and quantitatively assess critical decisions.

In the face of divorce, an entrepreneur’s immediate concern—beyond heartbreak and sometimes the issue of custody—will be the integrity of their business. The destiny of an entrepreneurial venture is intricately linked to the well-being of its founder, and vice versa. Thus, it is crucial to consider how the proceedings of divorce will impact your present and future, and how divorce will affect both your personal and professional interests. 

How can divorce mediation protect your small business or startup?

Mediation Protects Your Money & Time

To preface, the stress and financial risk of starting or operating a business can often be the ultimate cause of relationship turmoil. In the fallout of a marriage where one spouse is the owner or both spouses are co-owners of business assets, it is important to understand how assets are divided in divorce, rather than leaving it up to the courts to decide. To learn more about the division of business assets in divorce, read our comprehensive guide on Handling Business Assets In Divorce By McNamee Mediations

Founders and owners are usually short on money, time, or both. Divorce mediation can be far more beneficial than traditional divorce for your productivity, cash flow, and even credit score! 

Mediation Protects Your Credit Score

The funding of an early stage business is often leveraged by business debt, which may be secured by the founder’s assets. Or, the founder may be fueling the growth of their venture through personal debt. 

In traditional divorce court, a judge’s ruling that you owe money to your future ex-spouse will appear on your credit report. Mediation has no impact on your credit score, even when settlement involves making payments to the other party. In fact, the California Courts recommend mediation for this simple financial reason. The settlement in mediation is achieved through a private, mutual agreement, and any financial terms of the settlement in the agreement finalized by the judge do not translate to your credit report.

Mediation Protects Your Productivity 

While the CEO of a large corporation may have the luxury of delegating tasks to assistants and managers, you wear multiple hats. Traditional divorce can escalate conflicts, dragging you away from your desk, and ultimately detracting your focus from the truly important goal of growing your business 

Traditional divorce can be extremely time-invasive due to the process of litigation. The bulk of the cost of litigation are the fees you pay to attorneys to prepare and present your case before a judge. In court, a judge will hear from the representation of both parties, but a judge is not responsible for bridging the gap or encouraging compromise. As conflict drags on, parties will need to repeatedly appear in court on court-assigned dates. The decision of a judge is legally binding, even if all parties disagree. 

Mediation is far more flexible with timing and solutions. Rather than draining your time and money on courtroom battles, a mediator facilitates the active and direct participation of both parties to voice their concerns and wishes and collaboratively craft mutual solutions. Mediation streamlines the process of understanding and resolving issues. Each meeting is scheduled around both people’s availability, set in the privacy of your mediator’s office.

Mediation Protects Your Reputation & Privacy

The public perception of a business in any stage, whether young or established, is often associated with that of the founder or owner.

Trial records are publicly available on the court website, which can be particularly concerning in the environment of divorce litigation, where parties are often adamant on disclosing unflattering portrayals of the future ex-spouse. 

Unlike large corporations, startup entrepreneurs and small business owners do not have the luxury of hiring public relations and crisis management firms to navigate the aftermath of a public trial.

Furthermore, the public nature of court compromises the shielding of intellectual property, trade secrets, and any sensitive business information, including financial data. 

The skewing of the public reputation of the owner and company employees, or the leak of sensitive information can ultimately tarnish the competitive advantage of the business. In contrast, mediation requires both parties to consent to participation and sign a confidentiality agreement; the information that is exchanged during mediation is generally not admissible in court. 

McNamee Mediations uses proven conflict resolution techniques to resolve disagreements about the business, including its value, operation, or future direction. We thoroughly review prenuptial and postnuptial agreements that pertain to the business and ensure that the drafting of  buy-sell agreements are fair, transparent, and legally sound.

If you have any questions about our mediation services, give McNamee Mediations a call today to discuss divorcing with a business. 

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