Protecting Your Business During Divorce

Ramzi Daklouche

Alright, Claudia, let's dive in—this is a topic that frankly most business owners hope they'll never have to navigate, but divorce is a reality for a lot of entrepreneurs. Mapping your business and marital landscape before anything gets filed or discussed is critical. We've seen too many cases where folks scramble at the last minute, and that's when mistakes are made.

Claudia Luquerna

Absolutely, Ramzi. It starts with clarity, right? We always tell our clients: before you even mention the word “settlement,” sit down and build what we call a One-Page Deal Map. This isn't some complicated legal document—just a clear inventory of what you own, how you own it, who’s involved, and where the vulnerabilities are. And it covers everything. Entity structure: Are you an LLC, S-corp, or an old-school C-corp? Who owns what percentage, and who has voting rights versus economic rights? Is there any phantom equity lurking, or maybe some options you forgot about?

Ramzi Daklouche

Yeah, and don’t forget those operating or shareholder agreements. Most folks only revisit those when they have to. But buy-sell triggers or restrictions—like ROFRs, drag-along, tag-along, or appraisal rights—become front and center. Was there ever a clause that specifically mentions divorce? You’d be surprised how many times we see a “trigger event” clause nobody remembered. I had a deal a few years back—Claudia, you remember that industrial client—where an overlooked clause about lease assignment totally derailed the timeline. The clause required landlord approval even for a transfer between family members. We were two weeks from closing and boom, everybody’s scrambling to get landlord consent. The tension in that room—man, it still gives me a headache thinking about it.

Claudia Luquerna

You know, Ramzi, that’s the kind of thing that trips people up. Then you have the debt stack. SBA loans, lines of credit, personal guarantees, UCC filings—sometimes tied right into payroll or bank accounts. If there are cross-defaults or cash flow covenants, guess what, you need to know that before you start talking about ownership splits or buyouts. And then the key contracts—top customers, big suppliers, franchisor approvals, or even government permits. Can these be transferred or assigned if there's a change in ownership, or does an outside party need to sign off?

Ramzi Daklouche

Exactly. And people risks—who on your team actually knows what’s going on? If your spouse happens to be the head of HR, or there are family members on payroll, or even if someone just manages all the logins and nobody else knows the passwords—those are real vulnerabilities. It all layers into cash flow proof, too: your SDE or EBITDA build, the add-backs you can actually stand behind, and then this tricky piece—personal versus enterprise goodwill. What part of business value walks out the door if things change?

Claudia Luquerna

And the punchline is: clarity up front prevents ugly surprises later. Surprises create leverage, but not for you—it’s usually for the other side, or your lender, or your landlord. If you’ve already got everything mapped, you head into negotiations or the courtroom in much stronger shape. And just a quick aside—building your One-Page Map isn’t only a divorce thing. We covered timing and preparation in our last episode about business sales. It’s the same logic applied here—be ready before you’re forced to be.

Ramzi Daklouche

Right! Whether you’re thinking exit, partnership issue, or divorce—it’s all about controlling the narrative, not just reacting to it. And, honestly, getting organized early just puts you in a better mental headspace, too.

Claudia Luquerna

So, let's go deeper into valuation. In a typical business sale, valuation is all about market buyers and future upside. But in a divorce, we're talking about a totally different audience—a judge, a mediator, or two warring valuation experts sitting at opposite sides of a table. The levers are the same but the context changes.

Ramzi Daklouche

Yeah, and the process gets pretty technical. The first lever—sellers' discretionary earnings or EBITDA. You have to normalize everything: clean out owner's compensation, one-off legal bills, family travel expenses, or... I don't know, that time you paid your cousin for "consulting" work during COVID. You separate out anything personal, otherwise it will get picked apart. And if your spouse works in the business—even if it's just part time—document a fair, market-rate replacement salary. The court's gonna look at it, so you have to as well.

Claudia Luquerna

And then there’s multiple selection. Smaller or more owner-dependent companies get lower multiples. If your business is heavily reliant on you—like, say, one big client, all the relationships, no written systems—you won’t get full value. But even things like key person risk or messy documentation can pull your multiple down. That was something we went deep on in our Q4 business valuation episode—documentation can move your value more than most people realize.

Ramzi Daklouche

You know, I always trip over goodwill—like, was it personal or enterprise? And the distinction matters big time in Georgia courts. Enterprise goodwill is tied to the business itself, transferable—so, that’s what usually gets divided. But personal goodwill? That sticks with the owner and, in most cases, doesn’t get split up. You really need a valuation expert who can defend how they break that down, especially for professional practices where your personal reputation is most of the value.

Claudia Luquerna

Working capital and debt also come up. The court and any buyers are going to look at how much capital the business actually needs to run. The net debt—like, what debt remains after you clear out cash on hand—will come off the top of any valuation. And don’t forget discounts for minority interest or lack of marketability, especially if the settlement talks about giving a non-controlling stake to a spouse. But, um, be careful—Georgia courts might limit certain discounts or outright disfavor them, so you need experts who really know local practice.

Ramzi Daklouche

Absolutely—and documentation does win here. Payroll, contracts with vendors, customer lists, banking access. Any add-backs you claim? Back it up with receipts, bank statements, export that CRM. And expect two competing valuations—one from your expert, one from your spouse’s. If you’re not careful about data, methods, and prep, you end up with a quote-unquote “war of experts.” Not a fun situation.

Claudia Luquerna

Quick story—I walked an owner through this recently. Each side hired a top-notch appraiser, and the numbers were almost $1 million apart. What saved the settlement? We made sure methods were agreed, date of value was clear, all key data was shared. Once they aligned on those, the gap closed from seven figures to something reasonable. So, plan for reconciliation—don’t just hope the experts will magically agree.

Ramzi Daklouche

And let’s talk control and continuity for a second, before we get to settlement options. Even amicable divorces can trigger lender approvals, landlord consents, or issues with franchisors. SBA-backed loans? They want to see what happens to debt service coverage after buyouts or alimony payments, or they’ll ask for a re-underwrite if one spouse drops off as guarantor. And a lot of leases or franchise agreements aren’t assignable—you need explicit permission. Timing matters, because you don’t want to promise transfers that you legally or contractually can’t make.

Claudia Luquerna

Exactly, and on governance, don’t forget about banking authority, payroll access, merchant accounts, your domain—I've even seen sites locked down at midnight out of spite. A basic continuity agreement—just a few pages, signed by both spouses about what you can and can’t do during the process—can avoid a disaster. Decide early who’s going to run day-to-day and who’s just observing from a distance. We call it the “Operating Spouse” versus the “Financial Spouse” role. Give each one clear lanes, and you can avoid drama—or at least reduce it, right?

Ramzi Daklouche

Yeah, that doesn’t mean it won’t be stressful! But setting boundaries and documenting them helps everyone—owners, employees, even lenders—sleep a little easier at night. And it’s one more reason your advisory team—attorney, CPA, valuation expert, M&A advisor—is so key, especially during high-tension transitions like this.

Ramzi Daklouche

Okay, so here’s the part a lot of owners dread—the actual settlement. And honestly, the goal should always be: protect value and keep the business running, not burn it to the ground for the sake of a “clean break.” A lump sum cash buyout sounds simple but it can completely drain the company, trip bank covenants, and put everyone at risk. Instead, think smarter: structured buyouts, seller notes, preferred units, even earnouts tied to actual performance instead of just pro forma dreams.

Claudia Luquerna

For example, seller notes—structured so payments are subordinated to bank debt, with reporting rights, payment holidays if cash flow dips, and protections against asset fire sales. Or, you could issue non-voting preferred units with a defined dividend, and a call option for the company to redeem those later. That way, you keep liquidity in the business and give your spouse predictable income, without throwing a wrench into operations. Earnouts tied to revenue or SDE targets are another way to align both sides—just be clear about the calculation method and cap audit rights so nobody’s fighting about the books a year from now. And bringing in a minority investor or recap can be smart too—sometimes dilution beats starvation.

Ramzi Daklouche

And don’t sleep on the tax impact. I mean, we’re not giving tax advice here, but every dollar you pay for a stock redemption or a note payment lands differently on your tax bill versus a cash distribution. Getting both an attorney and a tax pro in the room—early—saves a lot of late-night panic attacks. Structures that share risk often feel fairer, too, and keep both sides invested in the business’s success, which sometimes leads to smoother transitions.

Claudia Luquerna

On the flip side, sometimes the best answer is to just sell—partially or fully. If neither spouse can truly run the business alone, or a buyout would blow up DSCR or covenants, or key employees or clients are getting nervous and results are sliding, a market sale might be most protective. In those cases, it’s code names, tight NDAs, limited access for staff, and a broker who knows how to manage the noise. And, as much as possible, lock down an LOI that’s “divorce-aware,” with price formulas, transition plans, a timeline that meshes with court calendars, and realistic expectations for who’s sticking around after closing—if anyone.

Ramzi Daklouche

One thing owners definitely overlook: people and privacy. Communication is everything. Have a three-tiered plan—first lenders and landlords, then your management team, then the broader staff. Give your top customers reassurance before they panic and make sure key employees aren’t jumping ship. Sometimes stay bonuses or phantom equity can hold things together. And don't forget digital hygiene—get a neutral third party to reset passwords, cover off admin roles, and keep business data safe from “personal drama.”

Claudia Luquerna

And remember, at the center of all this is you—the owner. Sleep, nutrition, some counseling, whatever it takes to keep your head clear. We've seen even the most disciplined executives make rash decisions when they're running on fumes. Treat it like a marathon. Don’t let crisis mode become your leadership style.

Ramzi Daklouche

So, to close us out—Claudia, you want to run through our quick readiness checklist? Nothing fancy, just the 12 real steps every owner in transition should start right now.

Claudia Luquerna

Yeah, perfect. First, pull your entity docs, cap table, and all your buy-sell and trigger language. Second, export three years’ P&Ls, balance sheets, tax returns, and a trailing-twelve-month by month. Build a defensible SDE or EBITDA bridge—no fluff. Then list out all debt, guarantees, covenants, and maturities. Map every contract that needs consent if ownership changes. Identify what’s personal versus enterprise goodwill. Set interim roles—who’s operating, who’s financial. Draft a one-page continuity MOU covering banking, payroll, and system access. Pre-brief the lender and landlord quietly about possible moves. Choose your advisors—family law, tax, valuation, M&A. Model at least three settlement structures and their DSCR and after-tax impact. And if you might sell, have a clean teaser, a real NDA, an actual buyer list, and a negotiated, achievable timeline.

Ramzi Daklouche

And take our word for it—don’t wait until the last minute. Every one of those steps cuts your risk and makes you an easier client for your legal, tax, and advisory team to support. If you feel overwhelmed, just pick the first two or three steps and build momentum.

Claudia Luquerna

That’s a wrap for today. If you’re a business owner heading into a major transition, especially divorce, remember—there’s always a way forward if you’re proactive. We’re here to help you build the plan, not just react to the crisis.

Ramzi Daklouche

Couldn’t have said it better. We'll continue to dig into tough exit topics—even the ones nobody wants to talk about. Claudia, always good sharing the mic with you.

Claudia Luquerna

Thanks, Ramzi. And thanks to everyone for listening. Take care of your business and yourselves—we’ll see you next time on Transitions with Ramzi and Claudia.