Protecting Your Business Partners from Your Marital Fallout

Most people are prepared to undergo intense scrutiny and background checks when entering into a business partnership or for consideration to high-level corporate and finance positions.?

It’s a common occurrence meant to unearth skeletons and expose red flags in your life.?

The business partners or corporation want to know how your problems may become their problems if you are onboarded and welcomed into their fold.?

Your prospective or current marriage may be one of the things they look at with discomfiting interest.?

There is ostensibly a good reason for this personal invasion of privacy. Divorce has the potential to shine a spotlight on your business interests and investments in what’s called “Discovery.”

Discovery is a mutual exchange of financial documentation during divorce. It includes all income, assets/investments, and debts. It is an exhaustive and time-consuming process meant to ensure that all cards are on the table and there is full transparency relating to the divorcing parties’ individual and collective finances. The intended endgame is a fair and equitable financial settlement agreement.?

The inevitable consequence is the required production of documentation relating to business interests and investments. This makes prospective business partners queasy as they typically don’t want confidential documentation relating to their business exposed in your divorce.?

To give you some examples, one of my divorcing clients had 3 business partners. It was a very successful hands-on business and all 4 of them were actively involved on a day-to-day basis. Typically, I meet with my clients alone and we loop in their accountant and other professionals when needed. In this instance, all 4 business partners insisted on being at all meetings relating to the business, its valuation, forensic accounting, and documentation that would be produced. My client’s wife was seeking a marital portion of the business (of which my client was a quarter owner). She was also trying to understand its income structure and claimed there had been downward manipulation of income in anticipation of divorce – a fallacious assertion, which we needed to refute.?

Another example is a frantic phone call I received from a new client. He was in Europe for a corporate meeting with his business partners. His wife called him during the meeting to tell him she was seeking an immediate divorce. His business partners overheard and became so concerned as to how they would be affected that they told him to call me immediately on speaker phone and explain to them the process of discovery, equitable distribution, and allocation of business interests under NY divorce law.?

Fortunately, there are preventative measures to cut such problems off at the pass, including prenuptial and postnuptial agreements.?

For prospective or current business owners a very popular prenuptial or postnuptial clause is making a business separate property, and moreover, barring discovery of the business.?

This clause is one I am strongly in favor of when I represent the business owner and one that I am strongly against when I represent the non-business owner. However, everything can be made possible for the right price. If it is used as a barter for something worthwhile I can get for my client, it is open for discussion.?

Negotiating any prenup or postnup involves a lot of listening and diplomacy because we are trying to foster a marriage and engender love, endearment, and a sense of fairness between the parties. It needs to work for both parties, not just one.?

However, prenups and postnups are also instruments where strong advocacy for one’s client is needed to ensure the client is protected.??

We need to walk a fine line and be careful how we tread and define terms. If we are too inflexible with our own client’s interests in complete disregard of the other party’s interests, it can backfire.?

For more information on prenuptial and postnuptial agreements and walking the fine line of negotiating your ideal terms, contact The Law & Mediation Offices of Cheryl Stein.?