As a divorce lawyer, I’ve had the privilege of representing many small business owners. Restaurant owners are my hands down favorite because restaurants are held together by hearts and souls. Restaurants bear witness to friendship, love, and celebration: young couples on first dates, families celebrating birthdays, the neighborhood baseball team grabbing a bite after a tough game.
The two greatest risks to a restaurant during the owner’s divorce are accusations of unreported cash income or of code violations that put patrons at risk.
More than any other type of business, restaurant owners bring all of themselves to their businesses. Unfortunately, that means a restaurant is no ordinary asset when it comes to dividing it in a divorce. The emotional impact of a divorce takes its toll on both the owner and the business. Worse, the attorney’s fees related to the disposition of a restaurant can exceed the value of the restaurant itself.
The two greatest risks to a restaurant during the owner’s divorce are accusations of unreported cash income or of code violations that put patrons at risk. Business owners in a difficult divorce may find that the worst accusations come from their own spouse. They may hope that the judge will stop or correct their vindictive spouse, or that the judge can remedy any damage to the business. Neither is true; the divorce judge could be part of the problem. The judge will likely require that the restaurant disclose extensive confidential information regarding its finances and operations so that the value of the business and the owner’s true income can be determined. This will be in accordance with nearly every state’s law on financial disclosure in divorce. Not only are the disclosure requirements intrusive, they can be incredibly burdensome. The restaurant will likely need its own attorney to satisfy the court’s orders. In the worst possible case, the judge may decide that neither spouse can be trusted to run the restaurant, and appoints a paid receiver to operate it instead.
To help protect the restaurant from a terrible time in divorce court, a restaurant owner who is engaged to marry should hire a lawyer to write a customized prenuptial agreement that speaks to the future growth of the restaurant, and its valuation, division, ownership and control. If you plan on acquiring an interest in a restaurant, and you are already married, you need a postnuptial agreement that does the same thing.
Examples of language specific to protecting restaurant owners include: confidentiality clauses to protect proprietary recipes and formulas; damages clauses that specify the amount the owner will receive if their spouse attacks the restaurant on social media; clauses to account for any “sweat equity” for unpaid work the nonowner spouse performed; and traditional noncompete clauses delineating a geographic area where the nonowner spouse may not open a competing restaurant.
You should consult a divorce attorney licensed in your state who has experience representing businesses, and ideally, restaurants in particular. That attorney can customize a prenuptial or postnuptial agreement to meet the unique characteristics of your restaurant and state law.
The restaurant business is hard enough. Just surviving the first few years is a tremendous challenge. That’s why it’s important to protect your business and hard work with a well-crafted prenuptial or postnuptial agreement.