When business owners divorce: proceed with caution in picking experts.

• Author: Hunt, Cathy C.
• Position: LAW JOURNAL 2013

When high net-worth business owners get divorced, the business is as much a party to the proceedings as the spouses. In fact, the business is often named as a party in the divorcing business owner's lawsuit because a court has no jurisdiction to order a business to do anything if the business is not a party. When a business is named as a party, the court has jurisdiction to order the business to do any number of things. The court might order the business to not engage in certain transactions, incur any additional financial liability, access or withdraw funds from certain bank accounts, or allow a nonparticipating spouse to work at or have access to the business.

When a business is named as a party in the divorcing business owner's lawsuit, or if the business receives a subpoena requiring the production of documents, electronic evidence or the testimony of someone from the business, it is necessary to engage corporate counsel and the business's accounting firm to assist, advise and, when necessary, defend against demands by a party that are unduly burdensome to the business. The costs incurred can be significant, and it is a time-consuming distraction for employees and the owner to comply with demands to produce documents or testify about the business while still meeting day-to-day responsibilities.

When business owners get divorced they want to know:

* Will a court order me to own the company with my spouse who has not participated in running the business?

* Can the business redeem shares held by my nonparticipating spouse, and how will the amount be determined?

* Can the business redeem my shares pursuant to the shareholder or operating agreement's buyback provision? If so, what will be the price?

* Can I pay my nonparticipating spouse for his or her marital interest in the business, and how will the amount be determined?

* Will I have to remove my nonparticipating spouse's name from personal guarantees associated with the business?

* How will my business be valued, and how much will that cost?

* How much information, including sensitive financial and proprietary information, must my company disclose?

* What are the tax consequences if assets are transferred to my spouse?

Complexity requires experienced advice

There are many complex issues involved when a business owner gets divorced, including tax consequences, ownership transfer, continued operation of the business during the short and long term, the preservation and distribution of...