3 Things I Know About My Business Partner, But His Wife Doesn’t
Max: Today we’re talking about “Three things I know about my business partner, but his wife doesn’t.” And I think I should clarify some very important things straightaway. I’m not married. Alex is not married either. So we don’t live double lives. Do you Alex?
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Max: Our seven years of experience gave us quite a good advantage to get insight into this business world, how it works. It applies to male and female.
There are as many women in New Zealand that are directors and shareholders, and we’re going to talk about what is like to be a director and a business owner.
Alex: I just want to add that things we’re going to share with you today should not be taken as legal advice or anything like that. So we’re just going to talk general, out of expertise, out of talks and people we know and who shared their ideas with us over these years.
And we thought that these three crucial things we’re going to talk about tonight could be very, very interesting for many people in the business.
Max: Please feel free to leave any comments or challenge our ideas on YouTube. If you’re a lawyer or if you’ve got any experience, feel free to share with us as well and post comments, and we’ll be happy to address them if you have any questions.
So the first one is if you are married or in a relationship with a person that is a director, the chances are that this person has a family trust.
And all the very exciting gadgets and assets and toys that you’re surrounded by may not be owned by this person. It is rather owned by the entity called the family trust. Is it correct, Alex?
Alex: Yeah, it is. And you might discover a few very nasty surprises if things go tough and decide to separate with each other.
So one very important thing to consider when you’re a spouse of a person in business is that he or she would have a business trust and all the assets will be shielded in that trust.
Max: And in many cases, it’s done before the relationship has begun. The trust could be 150 years old, right?
Alex: Yeah. Well, it could be started by your ancestors or by your spouse’s ancestors to protect the wealth of their children, grandchildren, or to distribute the money between kids.
So a family trust with a long history would be pretty much like a Fort Knox. It would be impossible to break-in.
Max: Exactly. And in many cases, these family trusts are created with a good purpose, with a good end in mind, because for example, in my situation, I have a sister.
And I could decide that if something happens to me, I’d like some of the assets to go directly to her instead of my parents.
If I want to fund her education, or if I want all my assets to go to the charity because I’m an extremely philanthropic person for some reason. So there are many reasons that family trusts do exist. And actually, it’s a good vehicle to manage your assets.
Alex: So our advice to you, if you are in business, go and spend a couple of thousand dollars with a lawyer and set up a family trust. If it’s not you, but then the future generations of your family will benefit from it greatly.
Max: Or at least talk to your partner about it because you can create another family trust. Right? You can create a new family trust for your new family, for your specific family.
Alex: And the things that you acquire over the years together can be put in that family trust. And then your children, and not the children of your brother’s spouse, will be the beneficiaries of that trust. Let’s move on to a second one.
The next one is kind of related to the first one, and it is about a very notorious thing in many cultures, a prenup agreement.
Max: It’s a very famous document. So we just spoke about the assets, which your business partner may or may not have because there is a family trust. But certainly, there will be a lot of liabilities, and that’s if this person is involved in the business.
It’s just the nature of doing things. You have your risks. You have your bank overdraft. You have your car loans. You have all sorts of loans.
Alex: Especially when the business has just begun, or in the first two years of creating it.
Max: So it’s a very risky entity to run a business, to have a business. And without knowing, you become liable. In many cases, you become 50% liable for all their debts of your partner.
So if you use these assets, whether it’s a vehicle, if you use the business to fund your travel, to fund your life, you immediately become liable by 50% of the debt because you used this debt to fund your life, and you may not realize it.
And I think you would be very surprised how big the debt is, especially if we start talking about houses. The average house now in Auckland is about one million bucks.
Alex: Yeah. You might want to talk about your house, specifically.
Max: I’m privileged enough to have one in Auckland, you can say it is one million bucks. And it’s 100% funded by the other ventures, by the business, or the other properties.
And all of a sudden, if you get married to any other person that’s got a $1 million of debt, and you live in the house, or you use this house for any kind of purpose, you become liable by 50%. All of a sudden, you are $500K poorer.
Not that I believe something will happen to the property in the near future, but that’s another topic. Be careful about what you get to the both.
Would you, Alex, get some kind of financial statement from your business partner now that you know that there are a lot of debts? What would you do personally?
Alex: I would just talk to my partner, and probably it’s a good thing to have a look at the shareholders’ agreement of the business.
If you’re running a business and you don’t have one, and there’s more than one shareholder, probably a good idea to go and get one. So if you do, just ask your partner to show it to you and discuss it in details.
And again, things which might be there could be surprising to you, and if you have questions, go and seek legal advice, and come prepared. And when you are ready to sign the prenup agreement, come prepared, so take your time. Learn your partner’s assets and liabilities.
Learn about them and know your assets and liabilities, so you come to the table both with something. And in the future, it will help you a lot to distinguish who owns what and who owes what.
Max: So yeah, basically, prenup agreement is a quite important document where it can protect you personally from being liable by at least 50% of your partner’s debts and liabilities. So let’s sum up.
The first one is that you should discuss with your partner, is there a family trust? Should you set up your family trust and what to do about it? The second point is that 100%, there will be debts. Everyone has debts nowadays.
I believe there is no person that doesn’t have a debt. And you have to discuss debt issues. Discuss how it affects you and what you should do, any documents to protect yourself and your family. And the third point, what’s the third point, Alex?
Alex: The third point is a bit philosophical, I’d say. And many people can agree or disagree with it. And even me and Max are not 100% agree on that. Even though we share similar views, but we don’t agree on some details.
When you start a business, and you have a partner, probably the business would be number one in that period of your life. So it is okay to have it.
And if your partner does love you and they probably can understand that you’re going through a very difficult time of your life, and your ultimate goal is everyone to be happy, including your partner.
So maybe you should let the business be number one in your partner’s life for a while certainly, not for a longer period. And that’s where Max and I disagree actually.
Max: In my opinion, if you have a partner and you both decide to go on a journey to start a new business, you have to realize that it’s going to take a lot of energy from your partner and possibly yourself if you’re going to support her or him.
And in this situation, you just have to discuss it. How are you going to manage it? Because for the first couple of years, not only is it going to be losing money in many situations, 9 out of 10 businesses will lose money in the first couple of years.
And to make it work and to make it successful, you’ll have to work at least 12 hours, 6 days a week. I don’t know any business person that doesn’t work six days a week.
In my personal opinion, it will be hard for the first couple of years, but if both of you agree on it and if both of you expect it, and you’re happy with it, then I think you’ll be fine.
Alex: So the most important thing about our third advice for business owners, or actually for a people in a relationship with a business owner, is to try to be more understanding and keep a big picture in mind.
Maybe today or tomorrow it’s going to be hard, but in the future, it will definitely be fruitful, and you’ll all enjoy the results of the amazing venture you started a few years ago.
Max: And I’ll give you a bonus tip that Alex touched right here on the subject. It’s about the shareholders’ agreement.
You actually may not be part of the shareholders’ agreement if your partner is a business owner, because this shareholders’ agreement is done in many cases privately between the directors and the shareholders, whether it’s two, or three, or more, or I don’t know how many shareholders are there.
In this situation, the spouse may not be part of the business and may not have any active decisions in the future of the business.
So if you want to be part of the business, you have to discuss it with your partner and make sure you sign the agreement, and you’re a part of this agreement because you know now what happens to your business partner.
And if you’ve got kids you have to care for them and, I mean, most likely you will get the share of the business. But if you want to be active, while your business partner is well and healthy, you may want to have a look at these documents once again.
Read the document, see the lawyer. It’s only a couple of hundred dollars for the shareholder’s agreement.
To sum it up, the four points, have the family trust, discuss it and be careful when you start a new business venture, it’s going to be hard for the first couple of years, and there is a shareholders agreement so have a read.
Thank you for your time, and if you have any questions, please leave a comment on YouTube.
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