Divorce: diaper mogul's divorce is reason to change your plan.

Author:Hunt, Cathy C.
Position:LAW JOURNAL 2017

In 2000, Tereson Dupuy, started an online patented cloth pocket baby diaper business called FuzziBunz. She later appeared on the television show "Shark Tank" to promote her invention. Despite having over $23 million in sales, the sharks didn't bite, noting that Dupuy was an impediment to the company's profitability. Dupuy, appearing on the show's podcast, agreed that she was burnt out after 12 years of "killing it" and six years of post divorce settlement fallout. What happened to Dupuy is not uncommon among striving entrepreneurs.

Starting a business is life consuming on all levels. It requires living with uncertainty and often working in some capacity seven days a week. For owners that are married the stakes are higher. Often, the marriage and the business become like contenders, each competing for a valued piece of the business owner's time. Perseverance, persistence and determination mark the traits of entrepreneurs who successfully find their market and outlast their learning curve. However, the division of attention between work and family can cause a marriage to unravel.

Risk management for any company should include strategic planning in the event that a founder gets divorced. Making thoughtful and considered decisions on ownership, income distribution and buyback provisions in happier times will save money, aggravation and possibly the business itself should a divorce occur.

If you're not careful in developing your business plan, you could find yourself in business with your soon to be ex or floating a loan to buy out your spouse's shares in the business. That's what happened to Dupuy, who launched her company early in her marriage. When her marriage dissolved, the company had to borrow a reported $2 million to buy the husband's interest, and Dupuy s husband was actually awarded control of the company on a temporary basis according to Entrepreneur magazine. Payments on that kind of debt would significantly reduce cash flow and negatively affect a company's borrowing power. Hindsight is 20/20, and if Dupuy had it to do over again, it is likely she would develop a business plan that would protect the company in the event of divorce.

Too often owners of closely held companies don't follow corporate formalities, especially when it comes to naming owners and creating a custom operating agreement. They give ownership to a spouse who really is not involved in the business creating income and tax consequences, and he or she has no...

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