Making It Legal:

D is also for “pawning your DEBT onto someone else.”  I am mightily relieved that this fellow is not my husband:

Q.:  I own a business and run it as a DBA. Can I sell it to my spouse? And can my spouse assume all the debt attached to the business?  What do you gain by selling a debt-ridden business to your spouse (unless maybe you’re getting divorced)?

A.:  You cannot sell a DBA business to anyone–not even your spouse.  There’s no business to sell, because the DBA is just another name for you.  Without a business entity, the debt is in your name and you will need your creditors’ permission to transfer it. Otherwise, you could technically be engaging in fraud.  Even if you could transfer the business to her, does it really matter?  If you’re married filing jointly, the debt will show up on your tax returns regardless of whether it’s in your name or hers. 

Are things so bad between you that you’d really want to stick it to your wife by selling her this debt-ridden albatross?  If so, you may need legal counsel of a very different nature.

Transitioning a business is never easy under the best of circumstances; having a family succession plan is even thornier. After all, you are entrusting your life’s work to people who, years ago, may have 1. Stolen your boyfriend (or favorite party dress or Johnny Mathis album), 2. Crashed the station wagon while carousing after a high school football game, or 3. Been the family egghead who played Etch-A-Sketch at the dinner table and seemed to relate better to the dog.

The serious business considerations mixed with family dynamics/emotions can result in a volatile cocktail. Here’s the goal: to make sure that you, the founder, get the financial security and value you want from turning over your business, while ensuring that the next generation receives a healthy business that will sustain them as they take it forward.

How can you get there? Keep these key issues in mind:

1. Know what it’s worth and what it will cost. Be fair and objective, as if you were selling the business to an outsider. Get outside advisors to help you determine the value of your company as it stands now . . . and where there might be room for improvement. Also, there’s bound to be a tax bite somewhere. Make sure you get the right advisors on board so that you’re prepared for what it will be and how it will get paid.

2. Know your options and why you’re choosing them. You may want to leave a legacy, but you’re not doing anyone any favors if you’re saddling your kids with an albatross (and career path) they really don’t want for themselves. If you want to leave an enduring mark on the planet (and that’s your reason for turning the business over to family), you may be better off selling the business and using the money to build a hospital wing (or other charitable purpose). Make sure you have a long, deep conversation with your company’s intended heirs to ensure that they have what it takes to truly build the business (and not run it into the ground).

3. Know what you want to do with your life. After pouring your blood, sweat and tears into this company, give some thought to “is there life after business transition?” And if so, what does that life look like? If your idea of transition is handling the company over to your niece but then micromanaging it (and her) like a nudnik mother-in-law, think again. Leave your ego and the desire to be the eminence grise, the power behind the throne, at the door. Better yet, choose another throne to sit yourself on.

It’s so easy to get sucked into an awkward spot when doing business with friends. It can start out as an exchange of expertise (a barter of the minds, if you will). Add in a dollop of friendly advice and MasterMinding. Mix together in a bowl . . . and watch the uglies emerge.

One colleague (”Joanne”) spent months helping her college friend, “Darla,” develop her website and blog. Joanne shared all sorts of valuable information about how to drive traffic, target influencers and handle the process of blogging so that itwouldn’t overwhelm the rest of Darla’s business. Joanne also thought she’d get something out of it: Darla has a lot of expertise in an industry that Joanne wanted to break into. So Darla seemed the perfect case study.

One day, Darla told Joanne that she had a potential client for her–another company wanting to start a blog. But there was a hitch: Darla wanted a finder’s fee. This got Joanne’s nose out of joint, given all she had done for Darla. For free. After a lot of back-and-forth, Darla says, “Oh, never mind–I’ll just help the client do it on my own. I’m not really competing with you, anyway, for the business.” Joanne was furious . . . and bewildered. After all the time she had spent with Darla–had she unwittingly ended up training her next competitor?

Here are some ways that Joanne could have managed the relationship better:

• Put a limit on the amount of time she was prepared to spend for free.
• Make it clear (ideally, in writing) that this would be a barter relationship and determine how she wanted to be “paid.”
• Given Darla just enough information to understand the process, but not so much that Darla could build a business on it.
• Treat Darla like any other client and have her sign a non-compete, saying she won’t use the infomation in connection with a competing business.

Any other suggestions?

A morbid thought as I’m sitting here blogging on the date of my wedding anniversary . . . but what would happen to my business if I got divorced? (I know the answer. What if it happened to you?)

Many business owners spend years of their lives trying to build a business, only to find that their spouse (or soon-to-be ex-spouse) wrenches it out of their hands, and they’re left with nothing to show for their years of hard work. For those who have started a company but not yet married, there are ways to protect it in a prenuptial agreement. (Or, depending on the laws of your state, with a post-nuptial agreement after you’ve married).

People shy away from prenuptial agreements for similar reasons (I think) that they shy away from business partnership agreements: They’re afraid that preparing one will jinx the relationship, and they don’t want to spend the money because they’re convinced that nothing will go wrong. “We’re in love.” Yup, so were the other 40 percent to 50 percent of couples who are now divorced.

Similar to furniture, cars and real estate, you can provide that what you brought to the marriage will be yours to take from it, should the big “D” arise. In many states, you have a much stronger claim to your educational degrees (and the earning power that results), investments and business assets if you created/accumulated them before marriage rather than during marriage (when it’s often seen as marital property, and should be shared). You may also be able to protect the increased value of those assets over time.

I know this sounds horribly clinical and detached. But not long ago a marital relationship was viewed to some degree as a business proposition and a property exchange. Traditional Judaism, for instance, has long instituted the ketubah, a form of premarital contract that was designed to ensure that the wife (usually entrusted with the running of the home and not earning her own money) would be provided for in the event of divorce.

I have a prenup. It doesn’t mean that I love my husband any less or that I don’t want to share the financial successes of my company. But I want that sharing to be on my terms, because I willingly give it and bring that to the relationship. Not because I have to. Raising the subject with my husband (then my fiance) was v-e-r-y difficult and awkward for me. (And I’m blessed that he was understanding and reponsive.) But it also gave me important training in raising tough topics with him–and plenty of those arise in marriage. We faced the issue head-on, discussed it, hired the lawyers, resolved it quickly and filed the document away. At most, the process took a little more than a month.

Consider it. You get insurance to protect your health and your belongings; why not a prenup to protect your business assets? There’s no harm in consulting with a matrimonial attorney in your state. You may well find that having these conversations with your “intended” about your expectations brings a well-needed clarity to your relationship that wasn’t there before.

Transitioning a business is never easy under the best of circumstances; having a family succession plan is even thornier.  After all, you are entrusting your life’s work to people who, years ago, may have (1) stolen your boyfriend (or favorite party dress or Johnny Mathis album), (2) crashed the station wagon while carousing after a high school football game, or (3) been the family egghead who played Etch-A-Sketch at the dinner table and seemed to relate better to the dog.  The serious business considerations mixed with family dynamics/emotions can result in a volatile cocktail. 

Here’s the goal:  to make sure that you, the founder, get the financial security and value you want from turning over your business, while ensuring that the next generation receives a healthy business that will sustain them as they take it forward. 

How can you get there?  Keep these key issues in mind:

1. Know what it’s worth and what it will cost.  Be fair and objective, as if you were selling the business to an outsider.  Get outside advisors to help you determine the value of your company as it stands now . . . and where there might be room for improvement.  Also, there’s bound to be a tax bite somewhere.  Make sure you get the right advisors on board so that you’re prepared for what it will be and how it will get paid.
2. Know your options and why you’re choosing them.  You may want to leave a legacy but you’re not doing anyone any favors if you’re saddling your kids with an albatross (and career path) that they really don’t want for themselves.  If you want to leave an enduring mark on the planet (and that’s your reason for turning the business over to family), you may be better off selling the business and using the money to build a hospital wing (or other charitable purpose).  Make sure you have a long, deep conversation with your company’s intended heirs to ensure that they have what it takes to truly build the business (and not run it into the ground).
3. Know what you want to do with your life.  After pouring your blood, sweat, and tears into this company, give some thought to “is there life after business transition?”  And if so, what does that life look like?  If your idea of transition is handling the company over to your niece but then micromanaging it (and her) like a nudnik mother-in-law, think again.  Leave your ego and the desire to be the eminence grise, the power behind the throne, at the door.  Better yet, choose another throne to sit yourself on.