Navigating a successful business exit when a marriage ends in divorce often presents challenges for both parties. Leaving aside the emotional tensions present in divorce, resolving conflicts regarding the ownership of business interests in the marital estate is also daunting. This post therefore reviews options for divorcing spouses to in their divorce proceeding. If couples can ratchet down the emotions and the acrimony, the tools discussed in this post may help allow the couple to optimize the financial outcome of their divorce settlement and preserve the value of the company they own or in which they share a large ownership stake.

The Valuation Dilemma

The most contentious business issue in many divorce proceedings is the value of the business that must be divided as part of the divorce settlement. Valuation is an inexact science, and the divorcing couple can easily spend hundreds of thousands of dollars on expert and legal fees battling it out over the value of one or more private companies included in the marital estate. This challenging issue is not subject to any easy fix. But there are some options the couple may want to consider before engaging in an expensive and time-consuming valuation battle.

(a) Marital Agreements.   Couples can eliminate the private company valuation battle by entering into a marital agreement that specifies what specific assets will be shared on divorce, or what amounts will be paid, and the agreement can also specific how the value of any assets will be determined. While a pre-nup is more common, couples can also agree to enter into a post-nup that details a property division and removes any conflict regarding the valuation of specific assets. Texas statutes set forth strict requirements to follow for marital agreements be enforceable. See Chapter 4 of the Texas Family Code

(b) Designated Valuation Expert. The couple can agree to pre-select and designate a valuation expert they both trust to conduct the valuation for them and to be bound by whatever value is determined by this mutual, trusted expert. Alternatively, there are variations on this approach, which give the couple the right to retain valuation experts if they don’t like the value that is determined by the designated expert and the results of these additional experts will then be averaged to determine the final value. 
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By Ladd Hirsch[1]

“Water, water, everywhere,
And all the boards did shrink;
Water, water, everywhere,
Nor any drop to drink.”
The Rime of the Ancient Mariner, Samuel Taylor Coleridge, published 1798

This riveting poem by Coleridge relates the story of a sailor who is cursed for killing an albatross, which results in the ship’s crew nearly dying of thirst while they are surrounded by the great expanse of the ocean.  While not nearly as dramatic as this scene from the poem, divorcing spouses who own substantial interests in successful private companies do commonly experience a similar dilemma.  The couple’s interest in a private company may be a highly valued asset that is worth millions of dollars, but the spouses and the company lack the cash necessary to fund the purchase of the interest held by the selling spouse.   In the Coleridge vein, there is value value everywhere, but no cash to pay for it.  Without a creative solution in place, this lack of liquidity creates a significant problem for the divorcing couple in achieving a “just and right division” (as required by the Family Code) of what may be the most valuable asset in their marital estate.

A Road Less Traveled—Postponing Asset Division Can Pay Dividends

The conventional wisdom is that all marital assets must be divided at the time of divorce.  But, when a liquidity problem exists in divorce cases that involve the ownership interest held in a substantial private company, the best solution for the couple in some situations may be to continue their joint ownership of the business for a period of time.  This approach to the division of a marital asset can be termed a “phased buyout,” and this settlement structure provides the spouse who is acquiring the full ownership interest in the company (the buying spouse) with the time necessary to secure the capital  required to purchase the other spouse’s interest in the business (the selling spouse).
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By Ladd Hirsch[1]

Spousal consent provisions are commonly found in the governance documents of private businesses, e.g., corporate bylaws, limited partnership and LLC agreements.  Private company owners include these consent provisions in their agreements, because they do not want to find themselves suddenly stuck with a new business partner when one of their co-shareholders, partners or members goes through a divorce.  Whether the spousal consent provision will hold up in court when challenged by a spouse claiming unfair treatment, however, depends on a number of factors, and the frequent use of these provisions provides no safe harbor.

This post examines the legal considerations a court will focus on when a spousal consent provision is challenged in a divorce proceeding and also considers issues that arise when the company seeks to enforce the provision against a divorcing spouse.  We conclude the post by offering suggestions for drafting a more effective (enforceable) consent provision.
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It is common for divorce settlements to include a transfer between spouses of an ownership interest in a private company, but the frequency of this transaction does not mean that it should be taken lightly. In fact, transferring a private company ownership stake in a divorce settlement often includes heightened business risks beyond the sale of a business interest between two unaffiliated parties.  This post therefore focuses on critical business risks present for both the spouse acquiring the ownership interest and the spouse who is transferring the interest in the company.  These business risks should be discussed with the spouses’ family law or business counsel to ensure that they are addressed in the parties’ divorce settlement.
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Not so long ago, marital pre-nups were viewed as devices solely for use by the rich and famous, who never seemed to stay married for long.  In today’s world, however, couples from all walks of life face a myriad of important financial and personal issues that a pre-nup can help them to address.  Pre-nups can benefit both spouses, including by:
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