Perleman Ex Sues for More

As if the $40 million divorce settlement wasn’t enough, actress Ellen Barkin is suing her ex-husband, financier Ron Perleman, for an additional $3.4 million that she says he agreed to pay to a production company that she started with her unemployed brother. Perleman says Barkin has not fulfilled her obligations under their agreement.

Doing Business With Your Spouse

Do any of these remind you of yourself?

1. You want to take your spouse into the business?
2. Or you have a business, maybe at home, and your spouse is just helping out?
3. Or are the two of you are thinking of starting a business together?

I suggest – strongly – under any of these scenarios that you get yourself to an attorney now.

Why? Take the second scenario first because it hides its problems like a snake in the grass. You may not know that the law can imply partnerships by actions as well as by a formal agreement. Two spouses start a business and even without a formal agreement, a partnership can be created by their acts. I willingly admit to an aversion against partnerships. I think most attorneys do not like them. Law school beats us over the head to avoid liability for our clients as much as possible. If anything goes wrong with a partnership, then business creditors can go after all the joint assets. Since most businesses fail, why would you not be talking to a lawyer before problems start?

The other two scenario at least get the horse before the cart. The first scenario might only require tinkering with the business format and maybe a prenuptial agreement or a post-nuptial agreement while the third does require advising on the business format (corporation, limited liability company or partnership) and a post-nuptial agreement.

Why a prenuptial/post-nuptial agreement? If the clients want to keep the business running as long as possible, they need to consider all of the problems including divorce. I think this kind of l agreement needs to be considered regardless of the business type used by the husband and wife. With a partnership and limited liability company having a written document (and a LLC requiring a written operating agreement) setting out how the business shall be run, incorporating some of the prenuptial/post-nuptial’s terms does not seem out of place. Based upon that reasoning, they need a separate prenuptial/post-nuptial agreement if the business is to be set up as a corporation.

Then they need to consider their retirement and estate planning objectives. If the business entity is a partnership or a limited liability company, these objectives need expression in the partnership agreement or the LLC operating agreement and for corporations in a separate document.

Source: Sam Hasler’s Indiana Divorce & Family Law Blog

Plan Now to Avoid Potential Divorce Complications

When business owners think about wealth management, they may think of stocks and bonds, trusts and other investment options.  But one thing that is not often discussed – although it can have a significant impact on the accumulation of wealth – is divorce.
The statistics show that 40 to 50 percent of couples who marry this year will divorce.  When that statistic is added to the fact that people are marrying later and often after successful careers are under way, it means that the impact of divorce on wealth management is probably more significant than ever before.

The divorce of a business owner or executive can cause serious complications, not only to the individual, but also to the company.  This is because unless precautions are taken, a married person’s ownership of a partnership or corporation will be presumed to be marital property subject to division in divorce.

In order to avoid finding itself with unwanted partners or shareholders, a business needs to plan.  It can prevent stock or partnership interests being transferred to a non-employee spouse by several different means.

Shareholder or partnership agreements, employment agreements and buy-sell agreements are some of the tools available to prevent strangers from acquiring an ownership interest in a company.  Such agreements can provide that no shareholder or partner may transfer any ownership interest to a non-employee, or to one not in a specified category of persons.  Or, the agreement can ensure that the company has the option to purchase any stock or partnership interest owned by a shareholder or partner who is going through a divorce.

Another factor to consider is that businesses sometimes award unvested stock options or unvested restricted stock to their executives.  The options or restricted stock will be deemed marital if earned during the marriage, but most courts will not consider them marital if earned in the future, after the marriage is ended.  Because neither the individual nor the business wants them split with a divorcing spouse, which would eliminate literally half of the company-provided incentive for the executive, the company should make clear in its documents whether the award is compensation for past performance or whether it is an incentive for the executive to remain employed at the company and earn benefits in the future.

Additionally, unless stock or a partnership interest is inherited or acquired as a gift, the interest will be considered marital property, subject to being split with a spouse in a divorce, or if awarded solely to the employee-spouse, requiring an offsetting payment to the non-employee spouse.  If the stock or partnership interest is ordered split, the once-majority owner loses control, or if the employee already owns merely a minority interest, the position is further diluted.

How a business is structured is also an important factor to consider.  Not only property division but also support awards are affected by the form of ownership in a business.  For example, if a spouse owns an interest in a subchapter S corporation (a business that passes its income through to the individual owner’s tax return) courts will presume that all the reported income is actually received by the individual, and thus is available to be paid for maintenance or child support.  (Many lawyers and judges do not understand that the income reported on line 17
of the individual’s 1040 tax return may have no connection with the cash distributions actually received by the individual from the business.)

While the decision whether to become a C corporation (a business that reports and pays taxes on its income rather than having the owners report the business income) is a very complicated one, if the business owner has the option, he or she should consider the possible advantages of converting to a C corporation prior to divorce.

In my experience, the typical small business owner who is divorcing wants his or her spouse to be awarded something other than an ownership interest, making non-transferability of stock or options crucial. However, even if the company does not have agreements preventing transferability, of course a shareholder or partner of a small business can also protect that interest through a prenuptial or post-nuptial agreement.

The spouse cannot be divested of rights to marital assets unilaterally or without a fair deal being struck, but such an agreement can be structured to protect the business interest while being fair to the spouse.

These various options are only a few to consider and are best explored with trusted business advisors,  such as an accountant or business/family attorney. But there is no doubt that with careful planning, many business complications that could arise during a divorce can be avoided.

Source for post: Small Business Times