“My spouse and I are about to divorce and I’m concerned that the divorce process is going to disrupt my business. What can I do to protect myself from interference from her and her lawyer?”
Whether the business you manage and own is marital property, community property, or your separate property you have a fiduciary duty to disclose information about that business and its value to your wife’s attorney and the court. If you owned the business prior to the marriage and had a pre-marital agreement that your spouse had no ownership and that any increase in value would be yours only, it is likely your separate property, a court could order that no valuation need be made. If you started the business before marriage, but worked in that business while married and there was no pre-marital agreement, it is likely that your spouse has an interest in its increased value during the marriage.
So you would need to get a forensic accountant to value to determine separate verses community interest. Your wife would have the right to get her own forensic accountant to value it and so would you (very costly). Additionally, if you started the business after the date of marriage, it is marital property and considered community property in states like California. You would of course be required to value the business for property division purposes. Additionally, since child and spousal support are based on income, the forensic accountant will need to determine what your actual controllable cash flow really is to see what is available for support.
What a business owner decides to take as salary is not what is going to determine support since the owner could take a low salary and utilize excess profit in many ways which a court would deem to be eligible for income.
If you are in a litigated or adversarial process for divorce you can expect extreme disruption of your business. Your wife’s lawyer and her forensic accountant have a right to subpoena a great deal of documents, ask you to answer written questions, depose you and others at work. It takes a great deal of your time and the time of your employees. Additionally there is no privacy, no confidentiality of those financial files. This could be embarrassing to you, your business and hurt your reputation. Much of this information is shared with the court and could become available to those who see the public file. It is not wise to litigate when you have a business. You could also ask for court orders that your ex-spouse not come to the office, not call the office, etc, but she has a right to know the finances. Trying to keep things secret to protect the business will only inflame the situation and cause further conflict.
In order to protect the financial privacy and security of your business and keep the disruption to a minimum — your best bet is to engage in a confidential mediation process for the divorce. Although you still have a duty to disclose all to your spouse, her consulting counsel, an agreed upon forensic accountant and the mediator, the general public doesn’t need to know your business or finances. And the court doesn’t have to invade your livelihood.
If you are in a collaborative private mediation, you still have a fiduciary duty to disclose the same information and documents, but if you do it voluntarily by agreement, you can save on costs, time, aggravation and disruption. You will deflect the conflict and save a great deal of money. Even better, instead of both spouses hiring sparring accountants — you can agree to hire a mutually acceptable neutral forensic accountant who will give a fair range of value of the business and determine the cash flow. That analysis will be used to negotiate a final valuation and quickly determine support issues. By using a neutral accountant, you drastically reduce costs, reduce tension, limit excess delays, and decrease disruption in the business- since only one accountant is making demands and visits. You can keep your finances out of the public eye.
Instead of escalating the conflict with restraining orders against your spouse or her against you from doing your business, your mediator will facilitate the problem solving so that all of the issues regarding your business and the daily workings and “boundaries” can be addressed in a civil manner. Both parties will be encouraged to keep the business going to flourish since it benefits you both. The greater the income the greater the ability for the business to help support the family and move on peacefully and prosperously.
Mari Frank is a divorce attorney-mediator in Laguna Niguel, CA (Orange County). She has been featured on numerous national television shows including 48 Hours, Dateline, NBC Nightly News, and The O’Reilly Factor and in newspapers across the nation including the L.A. Times, The Washington Post, and The Wall Street Journal