I will be participating as a panelist in a continuing legal education webinar tomorrow, March 15, 2012, entitled “Divorce and Business Valuations” at 1:00.
For those whose marriage is in trouble or who are about to begin a divorce, a few strategies can help preserve a business. Once the divorce proceedings start, entrepreneurs won't likely be able to implement some other legal maneuvers that, if accomplished in happier times, could keep their business from landing in a soon-to-be ex's possession.
Entrepreneur.com offers a guide to divorce proof your business:
1. Maintain good records, and keep the family's finances separate from those of the business.
2. Pay yourself a good salary.
3. Fire your spouse.
The more prominent the ex's role and the longer he or she worked in the business, the stronger the case a lawyer could make that this spouse helped build the enterprise and should profit from its growth.
4. Sacrifice other assets.
Try to retain 100 percent ownership of the business by forfeiting other assets instead, such as retirement accounts, the family's home, vehicles or collectibles.
5. Get a fair valuation.
6. Arrange to make any payments over time.
A buy-out of the spouse’s interest can be made over time instead of a lump sum payment.
7. Raise capital by selling a stake.
8. Sign a pre-nup or a post nup
You and your spouse can “agree” that your business is your separate assets and will not be subject to equitable distribution if the marriage ends in divorce.
9. Place the business in a trust.
This keeps the business from being counted as a marital asset as you no longer personally own it..
10. Create a buy-sell agreement.
A buy-sell agreement defines what happens to a business should any owner's status change, as is the case in a divorce.
New York became the sixth state to permit same-sex marriage. The new law becomes effective on July 24, 2011.
New York officials are preparing for a surge in in applications for marriage licenses when the floodgates open.
Unfortunately, at some time in the foreseeable future, there will be a corresponding surge in same sex divorce. As I noted, when interviewed by the New York Post:
Lost in the euphoria of the historic passage of New York's same-sex marriage bill is the inevitability of bitter break-ups.
There will be support claims to resolve, property to divide and custody issues to settle, as with any other divorce.
"The same issues present themselves with same-sex couples: How do we split assets? What do we do with the children?" Clement said. "The law doesn't change merely because you have same-sex partners
Officials predict that about 21,000 same sex couples will wed in New York in the next three years. If the state's current divorce rate of 8.4 percent holds, about 1,800 of those marriages will not survive.
Whether it be the economy, a desire to protect children, or simply the old adage that “The devil you know is better than the one you don’t,” more New York City couples are discontinuing their divorces and exploring reconciliation.
Following Stephanie Seymour’s reconciliation with her husband, I was interviewed in the New York Post, with several other divorce experts, in an article which tried to explain the reasons why couples file for divorce, then reverse course and attempt to save their marriage. While there was no consensus as to the reasons why couples get back together, there was general agreement that litigation laced with vitriol diminishes the odds of a successful reconciliation.
The five tips offered in order to have a successful reconciliation instead of a divorce are:
1. Go to therapy, ideally to a husband-and-wife therapist team.
2. Think of what it is that attracted you to one another in the first place — and see if you can bring that back.
3. Ex-sex is great, but not necessarily a deal sealer.
4. Get clarity on what your motivations are and whether you are in line with the desires of your spouse. If you’re not on the same page — emotionally or financially — there can be a lot of challenges.
5. When in doubt, try to negotiate a divorce rather than litigate it, as couples are more likely to salvage a marriage when they avoid a courtroom. When you start calling each other names and accusing each other of marital fault or of being wasteful, deceptive and cheap, it’s almost impossible to turn the other cheek and save the marriage.
In the article, I was quoted for having noticed a trend in my practice. In conversations with many of my younger clients, I observed that often they did not want a pre-nuptial agreement to protect assets they had already acquired-often they had yet to acquire anything of value, but instead, to protect their prospective inheritance. In many cases they were being dictated to by their parents and told that they had to obtain a pre-nuptial agreement.
In its most basic form, a pre-nuptial agreements identifies what is marital property, which would be subject to equitable distribution if the parties later divorce, and what is separate property, which would be immune from their spouse’s claims.
Property inherited or acquired by gift is separate property. However, money is fungible and memories of the source of the funds are conveniently fleeting.
As pointed out in the Divorce Analysis Blog:
A prenuptial agreement is useful in establishing the parties individual pre-marital wealth levels. While this may seem mundane ( I mean, who doesn’t know their net worth when they say “I do”?), you would be how surprised how time colors the memory of wealth. Like the old “fishing story” beliefs about net worth can change dramatically with time.
One of the most useful aspects of the prenuptial agreement is that it clearly defines what is separate property, where appropriate, values the separate property and delineates the circumstances where separate property can be converted to marital property.
Parents leaving sizeable estates to their children may require the children to obtain pre-nups to ensure that however their children use their estates, the funds will for all purposes remain a separate asset and otherwise immune from a spouse’s claim in the event the marriage ends in divorce.