Wealth by Design

79: Commingling Finances With a Small Business Owner

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Are you about to marry a small business owner or entrepreneur? Are you in a committed relationship with one? Whether you or your partner have a side-hustle-turned-income-stream or are building a budding small business, there are bound to be questions about finances. After all, how can you make it work with possibly variable income, and what will you do if đź’© goes sideways? But really, commingling finances with a business owner is about more than that. It's about what you plan to do as a couple as the business grows, and what happens in the event of death, disability, divorce (hey, it happens), and so on.

So this episode is for the committed peeps among us, who are in long-term relationships, married, or about to get married. And while it's totally cool if you're dating someone, you may want to bookmark this for future reference, as we only recommend commingling finances once you've got your boo on lockdown. Now, let's dive in. 

WHAT YOU'LL LEARN 

WHY COMMINGLE? 

First and foremost, let's address the question: "Why should you commingle your finances?" For some couples, it may seem unwise to even think about it, as variable incomes, business emergencies, or business debt may seem like huge obstacles to overcome. But we're big fans of the ol' commingle — and we'll tell you why:

  1. In most states, there is a "common law property" rule, which basically says that anything you accrue as a couple (after you've been together for a while) is owned by both parties. So, if you split up, you gotta split your stuff anyways. It's the law. 
  2. It builds trust and a stronger relationship. When you're on the same page with money, you're on the same page with your goals and wishes, too. Being open about money and working together to build security is one of the best parts of a lifelong partnership.
  3. Your partner in life, especially if you're married, automatically becomes a business partner. Yeah, they're helping you support the business, but the business will also be handed to them if something happens to you. 

 

Needless to say, commingling finances with a business owner beau is one of the best ways to protect each other, especially if something happens to the business or the person who runs it. 

THE 5 D'S OF COMMINGLING FINANCES

Danielle's crafty brain came up with a fun system for commingling finances as a business owner and their partner. She calls it The 5 D's and it goes a little something like this:

1. Death

As you probably know by now, we're not afraid to talk about death. When you marry a business owner, or you're a business owner marrying a non-biz owner, you should also be talking about death. If you don't have your finances combined and, god forbid, you die, will your partner know how to manage the business finances, or what is expected of him or her to keep the business running? What's your succession plan and does your partner know it? 

Keyman insurance can help with succession planning, as it protects the business in the event that a key man (or woman) can no longer work in the business. This makes sure things go smoothly for your spouse and your business and ensures that personal finances aren't affected by the business end of things.

2. Divorce

Unfortunately, divorce does happen — and money is the #2 cause of divorce (behind infidelity). Soooo. It's important to really think about how you combine your finances and operate as a couple. Ask yourself: How will you divide equity of the business, the rights to it, and what role will your ex play in the business if you split? Do you want or have a prenup? Think Jeff and Mackenzie Bezos: when Mackenzie filed for divorce, she was entitled to half of the accrued wealth from Amazon. She got half of $137 billion. So, like a LOT of money. She also had the option to keep her voting rights within the business but relinquished those to Jeff, as well as any interest in some of his pet projects. While your business may never reach the billion-dollar mark, it's worth having conversations about what you and your partner think is fair.

There's still a lot of stigma around prenups, but they're designed to protect both parties — and anyone else who works in the business. If there are other partners in your business, for example, they may need to buy out your spouse in the event of divorce. It's somewhat complicated to draft a prenup, though, so working with a contract or nuptials lawyer can help. 

3. Disability

Sometimes, you have to prepare for a disability like it's a death. In the event of a major injury or illness, you will be unable to step in and run the business — so who will? Do you want your partner to run things, do you have a partner you trust, or will the business fizzle out? Planning for disability in your business takes the same preparation as a death, but it's worth it to protect your family. Keep in mind that there may be extra costs associated with disability, as well, such as hefty healthcare expenses and the loss of your business income. That's why long-term disability insurance is recommended for business owners, but you should talk to your insurance agent or CERTIFIED FINANCIAL PLANNER™ to find out which plans and premiums are right for you.

4. Debt

If you went to college, if you didn't bootstrap your business, or if you made some poor credit card decisions, you may be entering your relationship with debt. When you get married, your partner is taking that on and they need to know about it. It's the best way to open that channel of communication and to make your spouse or partner feel part of the process. You'll need to work together to pay down the debt, and you'll also need to put protections in place, like business insurance or liability protection, to make sure your partner doesn't get saddled with debt in the event of divorce, disability, or death. 

5. Business death

Sorry to say it, y'all, but not every business can be a success. As a lot of us know, on the track to success, you'll rack up a few failures. If your business is not working and you can't get into the "black," you and your partner may be facing debt, bankruptcy, and major financial stress. Again, your spouse is your partner in business, so don't keep the problems from them. Talking about your business from the get-go will make it easy for your partner to come along for the ride, and you can plan together for that worst-case scenario. 

How to deal with the 5 D's 

Are you wondering how you actually put the 5 D's in place when commingling finances? Don't worry, we've got a few tips for you:

  1. Talk!! This means really setting aside time to commingle accounts and information, and committing to laying everything out on the table. Don't hide anything from your partner. And then, we (of course) recommend connecting with an expert who can help you navigate the technical parts of combining finances. If your business owner partner has a CPA or CFP, go with them to meetings, or ask to be included on calls. This keeps the channels of communication open and helps you plan as a couple.
  2. Focus on protection and security. You need insurance — period. Whether that's disability insurance, life insurance, contracts to protect your business, or all of the above, you need to cover your 🍑, and your partner's. Talk to your financial planner, to your lawyer, or to your partners. Make sure everyone is protected and that everyone knows what to do in case things don't go as planned.
  3. Actually start estate planning. Know what's gonna happen when you die. Wills, guardianships, trusts, power of attorneys, etc. are all important — and not just for the business owner. This is something all couples should do, but it's particularly important for couples with a business. 

We know this gives you a lot to think about, but we know how important it is to really start your life together off on the right foot. While it may not seem romantic to talk about disability insurance or prenups, we know it'll bring you closer together. 

This material is for general information only and is not intended to provide specific advice or recommendations for any individual.

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