In Texas, a business owner is navigating the complex intersection of personal and professional upheaval as he confronts divorce proceedings that may impact his relationship not just with his spouse but also with the business they built together. While he has been the primaryforce behind the operation of the company since 2021, legally, he owns just 2% of the business, with his wife holding the remaining 98%. This ownership distribution was established on advisory from their accountant, aiming for tax efficiency.
Diverging from conventional business ownership models, this structure places overwhelming legal control in the hands of the spouse, despite the owner’s substantial input operationally. The man, referred to here as Manny, recently detailed his predicament during an episode of the “EntreLeadership” podcast featuring financial expert Dave Ramsey.
Manny explained, “She’s actually 98% owner of the business and I’m 2% owner. Our CPA told us to set it up this way for tax purposes.” Despite her majority share, Manny has managed virtually all day-to-day operations and business activities. He expressed his desire to retain the company through the divorce, emphasizing his full-time dedication. “Even though she was the 98% owner, I did 98% of the work,” he shared. His willingness to forgo other marital assets such as their house and bank accounts underscores how critical the business is to him: “All I want from this divorce is the business.”
However, the response from his spouse has been noncommittal. Manny relayed, “She just keeps telling me, ‘I don’t know,’” revealing uncertainty about whether she will relinquish ownership or retain control. This situation has prompted candid advice from Dave Ramsey, who straightforwardly stated, “You can’t just sit with her owning it and you working there. That’s not going to work.”
Currently, mediation between Manny and his spouse is scheduled, which is expected to clarify the business’s future. If mediation results in the transfer of ownership to Manny, his plan is to continue expanding the business he has cultivated. Alternatively, should the business remain under his spouse’s control, Manny is prepared to launch a new heating and air conditioning enterprise and consider migrating existing clients to this new venture.
Ramsey acknowledged the difficulties of the situation. “It’s a pain in the butt,” he remarked, highlighting the challenges commonly associated with divorce. He advised Manny to be forthright with the mediator regarding the consequences of denying him ownership: “She’s not going to get anything. All she’s going to do is put this one entity out of business. The next morning I’ll be open in a different name.”
Reflecting on personal factors that may have contributed to the business ownership imbalance, Manny admitted to prioritizing his work over aspects of his marriage. “I was very selfish,” he said. “I always prioritized work, providing a roof and food. I thought that was enough, but I’m realizing now that’s not enough.”
Further, he acknowledged that he ceded financial oversight to his spouse, which he identified as a mistake. “That was my mistake for not looking at the books,” Manny said. “She did all that.” This gap in financial management has motivated him to close this knowledge gap by becoming involved in all facets of developing a business – especially accounting and budgeting — to attain a full understanding of the company’s financial health.
Ramsey encouraged Manny to implement disciplined accounting practices, including monthly profit-and-loss statements to track revenue and expenses clearly. This financial awareness is critical to managing cash flow and ensuring profitability.
On the topic of partnerships, Manny mentioned a desire to bring his brother into the business as a partner. Ramsey advised caution, stating, “You’ve had enough partners,” and recommended focusing instead on profit-sharing arrangements as part of employee compensation rather than new ownership stakes.
Ramsey also urged Manny to embrace the responsibilities of business ownership fully, highlighting the need for proper delegation and establishing robust financial controls. “You’re back at the treadmill operator stage. Your next thing is to delegate and get proper books set up, proper accounting, budgets, so you know what your profits are,” Ramsey said.
As Manny confronts these intertwined personal and professional challenges, financial planning support is suggested as a valuable resource, particularly for individuals earning substantial income or undergoing major life changes such as divorce or business rebuilding. Engaging financial professionals who offer personalized strategy sessions can help chart a clear path forward with confidence.
In conclusion, Manny’s situation exemplifies the complexities that can arise from business ownership and marital dissolution, especially when ownership percentages do not reflect operational contributions. Clear communication, mediation, and sound financial practices will be crucial in navigating the uncertain path ahead.