Owning a Business With Your Spouse: Pros and Cons

Working with your spouse might seem like the dream, and while it can be extremely rewarding, it also comes with many challenges. Anytime you’re developing a business relationship with someone close to you, it’s critical to set boundaries and outlines the technical aspects of the working relationship. Doing so and putting it in writing can help ensure your personal relationship isn’t negatively affected by your business endeavor. Owning a business with your spouse is an exciting opportunity to invest in a shared vision together, but make sure you consider your business structure and tax responsibilities first.

 

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Husband and wife business ideas

If you’re considering moving from partners in life to business partners are well, there are plenty of fun ways to start an endeavor as a couple. But before you begin, you should consider whether you’ll both be business owners, if one spouse will be an employee, how much work each member will put into the business, and what type of legal business you’re going to form.

 

If you’ve been considering starting a business and working for yourselves but aren’t sure yet what type of business is right for you and your spouse, here are some ideas you might find interesting:

  • Catering company
  • Pet sitting business
  • Photography or videography services
  • Personal training/fitness programs
  • Blogging or vlogging
  • House flipping
  • Landscaping or gardening services
  • Coffee shop

These are just a few small business endeavors that you and your spouse might find intriguing and that could be a good fit for your skills. Perhaps one spouse has some business background and will run the technical side of things while the other brings the passion and knowledge related to the services you’ll offer your customers. No matter your education, skill set or interests, there’s a small business model and idea out there for you and your spouse to begin making your own.

 

The pros and cons of spousal business partnership

There are plenty of reasons to start a business with your spouse, and these are certainly the pros of the arrangement. However, before you commit to such a huge undertaking, it’s important to think about the potential cons of engaging in a business relationship with your significant other.

 

Pros of going into business with your spouse:

  • Flexible work schedule to adapt to your family life
  • Potential for increase in income for your family unit
  • You already have a trusting and solid foundation for your partnership
  • Pursue a passion together and help each other realize a dream
  • Improve your communication in your relationship by learning to work as business partners
  • More time together
  • Ability to claim tax deductions on your personal assets if you work from your home

Potential cons of starting a business with your spouse:

  • Increased financial pressure in your relationship
  • More stress related to business activities that both of you are invested in
  • Potential miscommunications in the spousal relationship due to tensions in the working relationship
  • No separation between work and personal life
  • Decrease in your independence of one another
  • The potential failure of business could equate to a failure in the relationship

These cons may not apply to all couples going into business together, but the potential for a negative outcome exists. That’s why it’s critical to outline a written agreement for the business partnership before you begin, as well as setting clear parameters for which spouse has specific responsibilities in the business and how you’ll maintain positive and open communication with one another.

 

Best business structure for husband and wife

As you consider how to set up your business model, consider structural factors such as who will be the business owner and whether one spouse will be an employee. Will you have additional employees outside of your partnership? These decisions will impact how you register the business and how you file your taxes.

 

If both spouses are owners

If you and your spouse both plan to be owners of this business, you have three options for forming your business type.

 

Partnership

If you decide to form your business as a partnership, both you and your spouse will have a partnership share. In this model, both spouses retain equity in the business and its earnings.

 

LLC

An LLC is a limited liability corporation, which can be beneficial for protecting your personal assets if you ever run into a lawsuit with your business. If you register your business as an LLC, both spouses will have a membership share.

 

Corporation

If you decide to incorporate your business, both you and your spouse will be registered as shareholders so you’re both business owners. This can include becoming an S corporation if you’re forming a small business venture.

 

If one spouse is an employee

If you want one spouse to be an owner and the other to be an employee, the options are more straightforward. The spouse who’ll be the business owner can simply form a sole proprietorship or a single-person LLC, requiring little paperwork.

 

The employee spouse will receive a traditional paycheck with taxes withheld, which can simplify the couple’s life come tax season. An employee spouse is also eligible for Social Security benefits. The owner-spouse may require an EIN when registering the business.

 

Owning a business with your spouse: Tax overview

Depending on how you structure your business, you’ll pay taxes for your business with your spouse in one of several ways. If one spouse is an owner and one an employee, the employee spouse will be taxed on their paycheck, allowing them to file taxes normally and not have to set aside part of their income to pay at tax time.

 

When both spouses are business owners, they’ll pay taxes on their business income. If you and your spouse are operating a small business, you’ll likely be a pass-through business. This means your business income passes through to your personal income tax return, which is where you must claim that income. Simply put, you’ll declare the amount of business income equal to your ownership share on Form 1040 for the IRS. This applies to LLC, S-corporation, and partnership business structures. You’ll also need to pay self-employment tax if both spouses own the business, which goes towards Social Security and Medicare.

 

If you’re both shareholders in a corporation, you’ll pay tax on the profits you’re paid (dividends) but the corporation will be taxed on its income separate from your personal tax return. In all cases, ensure you’re doing accurate bookkeeping throughout the year to make tax season less stressful.

 

Tips for a successful business with your spouse

If you decide to move forward with a business as a couple, consider implementing some of these tips to ensure your relationship is strengthened from the experience.

 

Outline a written agreement

A critical aspect of success when going into business with your spouse is to start with a clear written agreement. Writing down what your business will be, who will own which shares and what income you’ll both earn can help avoid confusion or disputes down the line. It’s a good idea to involve an attorney in the process and create a legally binding document that outlines what happens if your personal relationship ends while you’re in business together. These are the complex aspects of working with people close to you, and while a verbal agreement might seem fine when things are going well, during tough times a written agreement can be very helpful.

 

Clearly define your roles

Before you go into business together, make sure you’re both happy with and understand your specific roles within the company. This can help avoid overstepping or one partner feeling like the other is controlling. If you each have dedicated responsibilities to focus on, you can work better as a team towards a unified goal.

 

Focus on communication

To maintain your solid personal relationship, you’ll need to focus on having good communication in your business relationship. Keep in mind that just because you communicate well as a couple, it doesn’t guarantee your business communication will be as seamless. Set aside time to have business meetings where you talk about business-specific topics and issues. Try to leave that talk for the workday, and don’t always bring business to the dinner table at the end of the day.

 

If you’re both on the same page, working with your spouse can be an extremely rewarding and fun experience. All you have to do is put in the work up-front to ensure you both understand your roles, your position in the company and how your income works and you develop a system for clear communication.

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