I am under the opinion, after practicing divorce law in Southern California for over 42 years, it is almost impossible to separate your business life from your personal life. I, too, run a multi-million dollar operation. I am responsible for meeting payroll and living up to my commitments to the judiciary, clients, vendors, and governmental authorities. A business owner’s responsibility does not stop at 5:00 pm; rather it is a 24-hour-a-day job. This article seeks to address how a divorce impacts a business owner.
You Are Served
It all starts with the business owner being served with a Petition for divorce. As we all know, this usually means a sheriff with a badge arrives at your office and possibly startles the receptionist at the front desk. It seems, within seconds, the entire business knows you have been served with divorce papers. You may feel mixed emotions: embarrassment, complete anxiety, and possibly apprehension.
Could you imagine the look on your face when making a presentation to key staff members in the board room and your receptionist interrupts to inform you there is a sheriff, with documents, requesting to meet you? This could actually take the wind out of your presentation.
After you recover from this transgression you may nervously get on the Internet or call a trusted friend. After which, you need to make the necessary preliminary arrangements on how to respond to the divorce documents served upon you.
It is absolutely critical you meet with an experienced divorce attorney. An experienced divorce attorney can provide valuable guidance at the onset of your divorce. Calming your fears is important. Make sure you select a practice limited to family law and a divorce attorney with years of experience. This is not a moment in your life to have a generalist talk about what might happen in your divorce. Keep in mind, the divorce process of Los Angeles County in 2010 is perhaps the most challenging environment you could find yourself thursted in to.
There are thousands of cases and thousands of statutes that can be cited in your case. The California rules of Court and the Evidence Code also factor in divorce proceedings. Experts can be called upon by either side to provide credentialed and specific testimonies, verbal or written, to assert either spouse’s best interests or to discredit the other spouse’s assertions.
There are different County rules. For example, (Los Angeles County rules differ from those of Orange County). There are different local district rules. Santa Monica Court has a completely different set of rules from Downtown Court. Judicial officers can look at the same set of documents and hear the same arguments and rule differently. There are judges who are elected and there are commissioners who are appointed.
Attorneys are different as well. Single practitioners may not have the operational capacity to handle complex and sophisticated transactional or custodial divorce cases. They can be overloaded by bigger firms requesting document after document or filing hearings after hearings. Older attorneys perhaps are more experienced than younger attorneys. Real estate and business experienced divorce attorneys are different from custody attorneys. Some attorneys have abilities in both types of cases (financial vs custody).
We make our living with these great people. However, they may be affected by our personal lives. A business owner is responsible for the culture, tone, and integrity the business attempts to manifest. If an employee senses that a business owner is acting out of integrity in their divorce, they may assume they are acting in the same fashion in the working environment.
The divorce process allows either party to subpoena and request documentation from the business directly. If appropriate, even the employees may be subpoenaed for a deposition to glean valuable financial and transactional information for the benefit of the spouse activating the subpoena. The divorce process can certainly be disruptive and disruption can lead to uncertainty in a business operation.
The business owner going through a divorce decision-making process is sometimes strained and challenged. This additional stress can lead to business inertia. Inertia can affect business income which can then affect payroll. Sometimes, as a result of a business owner’s divorce, employees are laid off, salaries are cut, or 401(k) matching plans are placed on hold if not entirely terminated.
Also, at the end of the divorce process, there may be a change in ownership or in fact a sale of the business. This absolutely affects all stake holders especially employees.
The Home Front
One must be extremely careful to behave in a civil and dignified caring manner throughout divorce proceedings. This means behaving in a mature, reasonable fashion if you are still living with your spouse. Believe it or not, a lot of people that are going through a divorce continue to live together. When children are involved, even if the tone in the family residence is tarnished, you have a responsibility to act completely civil and mature, especially in front of your children. Any inappropriate behavior is not taken lightly by judicial officers. Children must not be exposed to our adult indiscretions. You should never discuss divorce proceedings with your children.
Maintaining your civility at home and during your interactions with your spouse is absolutely necessary. What you do not want to do is inflame the situation whereby you threaten or assault, by any fashion, your spouse. You do not want to have an additional domestic violence case within your divorce case.
Keep in mind temporary restraining orders are available to protect individuals. Either spouse can request this order when necessary to protect themselves or their children. There is no excuse for domestic abuse.
If you do find yourself in a domestic violence situation, act responsibly and do whatever it takes to immediately reduce the situation; walk away and de-stress. Any arguments or disagreements should be resolved through your attorneys. Being kind and considerate to your spouse is invaluable.
Nothing is more taxing on a business owner’s ability to focus on the business than the custody of the children involved. A divorce may contain sensitive custodial issues. These issues may necessitate the assistance of child custody evaluations, minor’s counsel (attorney for children), or child custody monitors.
Temporary custody and visitation issues are challenging as well. Who will have the kids? Who will pick up or drop off the kids? New custody arrangements present challenging logistics that may confront your time management skills. Equally important to the counsel of an experienced attorney is how the attorney can communicate to the judge your ability to maintain the custody you are entitled.
This is where the tire meets the road. Financials are at the core of every business. Immediately a sophisticated divorce attorney on either side should have a preliminary understanding of both the personal and business financial situation of the individual being represented.
A divorce attorney experienced in complex divorce procedure can recommend the necessary professional for your divorce. One such professional is a forensic divorce accountant. The two most important reasons to engage a forensic divorce accountant is extracting business valuation and to determine what personal expenses are paid by the business, otherwise know as “perquisites”.
For example, if a high-earning business owner is going through a divorce, it must be immediately determined how to truthfully represent the financials to the family law court. While a forensic divorce accountant is invaluable, a business owner must maintain complete control of the process. Again, selecting talented and experienced professionals to assist you in your divorce is critical.
In the beginning of the divorce process, the financial disclosures are presented in the Income and Expense Declaration and Schedule of Assets and Debts forms. A business owner’s personal and professional life will greatly benefit from prompt preparation, reviews, and understanding of these forms. This is a significant step in the beginning of a business owner’s divorce. These financial forms are referred to as “preliminary disclosures”.
Sometimes complex divorces take time to resolve, even taking a few years. If this is the case, at the end of the divorce, these same financial disclosures are referred to as “final disclosures”. Any material financial changes must be reflected accurately. Insisting that my clients are truthful, organized, and pro-active is sensible for business. Keep in mind, when going through a divorce, the family law court is a court of equity. According to California community law, unless otherwise agreed to, most earnings and assets and debts must be equally divided between spouses. This is the cornerstone of the family law court.
Also keep in mind, all assets are presumed community. If a family residence or business was acquired or started prior to the parties’ date of marriage there may be significant separate versus communal issues and valuations that must be clarified. Another aspect that requires substantial analysis is support. Support may be for child support or spousal support (alimony). You do not want to be wrong in the process or representations.
Keep in mind, that temporary support calculations and analysis is different from permanent support. In other words, typically final support amounts are somewhat lower than temporary support. Last but not least, financial disclosures and their representations or documentary substantiation are indispensable when it comes to attorney’s fees.
Although, there are many reasons for ascertaining attorney fees, two reasons take the highest priority for a business owner: the need and ability, and compliance and cooperation. One spouse may have the need yet the other may have the ability to pay for attorney’s fee. Regarding compliance and cooperation, the divorce court frowns upon a spouse who is not complying or cooperating during the divorce process. A typical disciplinary measure employed by judicial officers is the charging of attorney fees to either spouse who engages in non-compliance or who is not cooperating.
Throughout a pending divorce process, the opposing party or their attorneys can launch a barrage of subpoenas demanding all sorts of financial information from the business. The employees, vendors, associates, and even customers, can be subject to such demands for production of financial information. Additionally, all these entities, including the business owner, are subject to a deposition.
If subpoenaed, they may be required to appear at an attorney’s office, bring documents, and be put under examination, under penalty of perjury, with a court reporter taking a legal transcription of the proceeding. It is actually an extension of the family law court procedure. If appropriate and permitted, the business owner’s employees, vendors, customers and associates can actually be connected to the divorce case and be subject to the divorce judge’s authority and orders.
Business owners, employees, vendors, and customers can find the divorce process disruptive if not managed properly. Business accounts, if permitted, can be frozen pending further order of the court, producing poor business.
While a spouse has the right to request extensive documents and information, handling these demands expends valuable business resources and may become extremely expensive.
As a business owner, you may find yourself allocating a significant amount of time to your divorce, to the detriment of your business. You may be called away for court hearings, depositions, accounting meetings or attorney meetings. Additionally, a court may thrust itself into a business if deemed appropriate. This includes perhaps placing a receiver (court appointed accountant) in the middle of operations. Typically, receivers can approve or disapprove key financial transaction. Naturally, having another individual in the driver’s seat of the business can and will wreak havoc on operations.
Finally, since the divorce process is public record, all information divulged, as in some recent high profile court cases, can lead to a public relations disaster. For this and the reasons reflected above, one must seek experienced and knowledgeable counsel during this challenging time in a business owner’s life.
P.S. Multiply what was discussed above by a factor of 10 if your business is a well-known company.
by J.Michael Kelly Esq.