One of the most complex situations to arise in either divorce or business law, is where two spouses, who also happen to be co-business owners, decide it is time to end their marriage. There is much to untangle here, and the interplay between corporate documents and marital documents such as prenuptial agreements can require a great deal of finesse and sophistication.
Is a family court required to honor the terms of an incorporation agreement? Is a civil court required to consider the terms of a prenup? What is the proper venue, valid procedure, and potential range of outcomes? Moreover, what if one of the co-owners is really more of a front?—such as when a wife may be added as the primary owner of a business to obtain certain funding opportunities as a “woman-owned business.”
Although the scope of the above could be the subject of an entire book, and is beyond the scope of this book, clearly there is much to consider. More so if there are other co-owners of the business.
Co-Partners in Everything
There are many similarities between a business divorce and a personal divorce. In the above scenario, there is a combination of both. That means it is likely that multiple attorneys will need to be involved, such as a business lawyer and divorce lawyer team for each spouse, and potentially even a lawyer for the business itself depending upon its corporate structure and if there are other co-owners involved.
The business interest(s) will need to be valued, which means retaining certain experts to perform a business appraisal. A determination will need to be reached, not dissimilar from other assets, as to whether the business interest(s) will be sold and the proceeds split, whether one partner will waive their interest, or if there will be a buy-out performed. In my opinion, it is easier to reach these types of determinations in a Marital Settlement Agreement, keep the case out of civil court, and then divide appropriately thereafter. A lawyer who practices in business law may argue in the alternative, of course. And as always, the specific factors of your case will provide the necessary context to your specific circumstances.
Maintaining the Business During the Divorce
You will want to continue to run your business in a manner similar to before the separation or filing for divorce. Just as you are expected to maintain the “status quo” in your personal life, the same principals will apply for your business interests. If you wish to do anything outside the norm, such as sell of a division or make a large purchase, you should endeavor to have your spouse sign off on it via a formal Consent Agreement.
A word of caution: even if you are still working with your ex, and even if you both are keeping things cordial, remember that you will be watched like a hawk. New Jersey is a single wiretap state, which means you can be recorded, including on your telephone calls with your ex (or anyone within the company loyal to them, potentially), so you need to be very careful about your statements. Doubly so for anything you place in writing, such as work memos or emails. Do not assume that they will remain confidential or as part of your business records, as our family courts have a wide range of discovery powers. As one of my former partners used to say, “The E in Email stands for Evidence.”
A Business Vision that is no Longer Shared
As with so much in life, and in divorce, a successful outcome will rely upon your vision. You need to visualize what your goals are for your business, your personal life post-divorce, and your divorce itself. Until you can properly articulate this to yourself, and then your divorce lawyer, you will be at the mercy of a cruel court system. This is not time to feel powerless or be rudderless; it is a time to act, just as when you started your business in the first place. There will be times you feel disheartened, frustrated, and willing to throw in the towel. Don’t. There will be better times ahead if you can push forward and show the resolve that made you a successful entrepreneur in the first place.
Once your vision is crystalized, it will help you determine whether you wish to retire, to sell the business, to attempt a buy-out, and so forth. Do not clue your partner in on these desires, as it is simply bad business. Think about how the Disney Corporation took great steps to shield their purchase of land around Orlando upon which to build Disney Land. And think about how much the price increased once that intent was widely known versus in the beginning. Information is the key to everything in a divorce, that is why the majority of the divorce process is made up of discovery. You do not want to spill the beans too early regarding your intentions. You want instead to have method to your madness, to quote Shakespeare, and to maintain your focus while keeping your own counsel. Well, that and your divorce attorney’s counsel, of course.
Use of Experts for Valuation Purposes
Again, the use of experts will be of paramount importance for most larger businesses. Even in smaller operations, it may be worth it to retain a business evaluation. You will need to determine if you wish to have a mutual appraisal, or your own. It costs less money to have a mutual appraisal, as you will likely both split the fees, but you do lose some of the ability to argue should the price come back lower (or higher) than you anticipated.
A divorce where your spouse is also your business partner is one of the most challenging circumstances in a New Jersey divorce court. That said, by maintaining a proper focus, by utilizing trusted counsel and experts, and by crystalizing a powerful vision for your future (both professionally and personally), you can move forward and find a solid footing for the next chapter in your life.
Partner with Carl Taylor, Esq.
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