• Divorce Is A Fact Of Business
  • June 3, 2003 | Author: David S. Harvis
  • Law Firm: Pessin Katz Law, P.A. - Columbia Office
  • If you're in business or do business, in order to be successful, you have to deal with facts. Divorce, unfortunately, is a fact of modern life. Various sources indicate that about 50% of all marriages today will end in divorce. The odds are, therefore, very high that your business may in some way be affected by the marital problems of yourself, your partners, your major (or, minor) stockholders, your employees or, in some cases, those with whom you do business. It is not the purpose of this article to provide solutions to particular problems in any of these areas; it is rather to identify particular areas which can be affected by divorce and marital disharmony, so that the effect on business can be minimized through proper planning (and here I emphasize the word "minimized" as opposed to avoided). The following imaginary factual situation is based upon a combination of cases which have actually occurred. Feel free to identify with any one of the imaginary characters, their business associates or employees. Adam Adams, Betty Brown and Chuck Cooke have not been having a good month. All of them are being divorced from their respective spouses, after 19 years of marriage each. One of them left their spouse because they found someone else. One of them had their spouse leave after being told by the spouse that "the marriage just was not working, and there must be more to life than this." The other one had been miserable in marriage for years with a spouse who had not only been overbearing and abusive, but extremely financially irresponsible, and had finally made the decision to end the marriage. Adam is the President of Adams Inc. (A.I.), a successful family-owned corporation which installs complete restrooms in commercial buildings. Betty is the managing partner in Brownstone Associates (B.A.), an architectural design firm which has worked for many years with A.I.. B.A. has a total of three partners all of whom have an equal interest in the partnership. Chuck owns a store called "Cooke's," a sole proprietorship which sells and delivers bathroom supplies and fixtures. Cooke's was founded by Chuck and has been in business for 25 years. A.I. frequently buys supplies from Cooke's as do many other construction related companies because of Cooke's reliability in service, and delivery. Adam has just learned from his lawyer that his wife is claiming that; although all of Adam's stock in A.I. had been given to him by Adam's father, who started the company, she is entitled to a piece of the corporation. His wife says that Adam received stock in the company instead of a higher salary, and therefore the stock is marital property. Adam is particularly worried about this because, of recent developments. A.I. is just finishing a large building development for a multinational company (MN) for which it has utilized the services of Brownstone Associates. A.I. has made all of the project's major supply purchases from Cooke's. The president of MN has been so impressed with the way A.I. has performed, that he has engaged Adam in negotiations to take part in a highly confidential major project involving ten countries. This project would increase the net revenue of A.I. tenfold over the next four years. Adam is afraid that he might have to offer his wife far more in a property settlement agreement then the disputed company interest is now worth to obtain a quick settlement; rather than fight the claim and take a chance on potentially losing the deal because of fears by MN that Adam's divorce would endanger the confidentiality of the project. Further, Adam wants to protect himself against the possibility that if a settlement is not reached with his wife, he might be forced to pay her the projected value of the disputed interest, which is far higher then the present value. Betty, who has been consulting with Adam on the MN negotiations, has just received a memo from her partners that they are calling a formal partnership meeting to discuss the ramifications of her divorce upon the firm. Both of her partners have been served by her husband's attorney with subpoenas to give depositions in her divorce case. Betty's partners are concerned not only that the firm's financial status and business secrets might become known and utilized by Betty's husband, but also that they may lose the opportunity to work on the MN project. They have been discussing the possibility of utilizing a forced sale provision in their partnership agreement, to buy Betty out based upon a formula in the agreement. One of Betty's partners is also secretly worried that he might have to reveal that he has recently received a letter from the State Bureau of Child Support indicating that unless he pays back child support in the amount of $15,000 he may lose his professional licence. Chuck has just received two very disturbing telephone calls. One of the calls is from his attorney, who has just informed him that his wife's attorney has just filed an injunction to keep all of Chuck's personal accounts frozen, including all of the Cooke's accounts, until the court can determine whether expenditures from these accounts are necessary, or an attempt to hide assets. The other call is from Chuck's bank. Because of his wife's financial irresponsibility, Chuck has kept all of his personal and business accounts in his name alone for the past 10 years. His wife has had nothing to do with his business since he has been married. When he started in business, he obtained a five thousand-dollar line of credit. Over the 25 years he has been in business the line of credit has grown to fifty thousand dollars. He has never been delinquent or even late in a payment. The call from Chuck's banker was to inform him that the bank would now require him to obtain his wife's signature on the line of credit or they would make no further advances. Chuck has always utilized the line of credit to ensure prompt delivery to his preferred customers, such as A.I. He is afraid that business considerations will force him to make unwanted concessions to his wife. Divorce is a fact of life. If there are four people involved in your business, the odds are that two of them will be affected by marital disharmony. Consider the ways that you might be affected. Many business people think of their attorney as a fireman, who will help them when an adverse situation arises. If you use this model, then this means that a "fire" has already started, and you have already suffered some loss. In anticipating problems which may arise because of marital disharmony because of the statistical probabilities; a prudent businessperson should consider woods dry, and the embers burning. Through the use of such commonly accepted instruments as buy-sell agreements, pre-nuptial agreements, stockholder agreements, trusts, partnership agreements, employment and consultation agreements, purchase and sales agreements, to name only a few, your attorney may be able prevent you and your business from being needlessly "scorched" from a heated divorce. David Harvis is a member with the Maryland Law Firm of Hodes, Ulman, Pessin & Katz, P.A. and can be reached at [email protected] or 410.740.2000.