3 Things Every Business Owner Considering Divorce Needs To Know

Many online sources can tell you what a business owner should do to protect his or her business before getting married or when divorce is not in the picture.   But what if you’re a business owner and you find yourself facing the divorce process head-on?

Where the business was acquired during the marriage, here are 3 actions to take right now that will save you money and help to facilitate a successful divorce agreement:

  1.   Stay out of court.

Once one spouse has filed a Complaint for Divorce, both spouses become become subject to the court’s timeline and mandatory court procedures, at least in New Jersey.

The court would likely designate a forensic accountant to conduct a valuation of the business so that the non-owner spouse’s share can be equitably distributed.

Because it is the court who selects the accountant, the business owner spouse has no control over who the individual is, whether he or she has experience in the industry, the quality of the work product, and of course, the costs, which could easily climb to the tens of thousands of dollars.  Instead:

2.   Diligently and cautiously select the forensic accountant to value the business.

Hold off on the filing of a divorce complaint and talk with your spouse about reaching an out of court settlement first.  Then, be cautious and diligent in selecting the most competent cost effective forensic accountant.  I typically will select a forensic accountant who is trained and skilled as a mediator and who has specific experience within the same or similar industry as that of my client’s business.

I also prefer a forensic accountant who adds value by running cash flow analyses for both spouses and structuring a settlement to optimize the tax consequences for both of them.  

3.   Maintain confidentiality to protect sensitive business data and trade secrets.

In New Jersey, divorce agreements, typically called “Marital Settlement Agreements” are considered public records.  Once the divorce is finalized, each spouse receives a copy of the Judgment of Divorce attached to their Marital Settlement Agreement.  The court retains the originals for its records.  As “public records,” they can be accessed by members of the public.   Where there is a business involved, it is common for the Marital Settlement Agreement to identify the value, names of officers, and additional details that the business owner prefers to remain confidential.

To maintain such confidentiality, the Marital Settlement Agreement should include a section that provides for “Confidentiality of Agreement.”  The section should provide that the parties intend that the entirety of the Agreement shall not be made a public record; that the parties through their counsel will request that this Agreement shall not be filed with the Judgment of Divorce as a public record; and that the Agreement will be incorporated by reference in a Judgment of Divorce but shall not be attached.

In addition, at the time the court enters the Judgment of Divorce, there should be a separate “Consent Order” signed by the parties, which reiterates the above provisions.  The Judge would then be asked by the attorneys to sign the consent order along with the Judgment of Divorce.  This way, the Marital Settlement Agreement would not be retained by the Court, only by the parties themselves.

Please contact my office for further details and to discover other ways to protect your business interests in divorce.

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