Based on my experience with practicing complex divorce cases in Los Angeles for many years, I believe it is almost impossible to separate your business life from your personal life.
I also run a high-asset business operation. I am responsible for meeting payroll obligations and fulfilling my commitments to the judiciary, clients, vendors, and government authorities. A business owner’s responsibilities do not stop at 5:00 pm; they are a 24-hour-a-day job. This article examines how divorce affects a business owner.
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 while you’re making a presentation to key staff members in your business boardroom and your receptionist interrupts to inform you that 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 that 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 the time for a generalist to discuss what might happen in your divorce. Keep in mind, the divorce process in Los Angeles County as of 2021 is perhaps the most challenging social environment you could find yourself in the middle of.
There are thousands of cases and statutes that can be cited in your case. The California Rules of Court and the Evidence Code also apply to divorce proceedings. Experts can be called by either side to provide credentialed, specific testimony, whether oral 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 rules. There are different local district rules, too. Santa Monica Court has a completely different set of rules from the Downtown (Los Angeles) Court. Judicial officers can review the same set of documents and hear the same arguments yet reach different rulings. There are judges who are elected, and there are appointed commissioners.
Divorce attorneys are different as well. Some practitioners may not have the resources or skills to handle complex and sophisticated transactional or custodial divorce cases. They can be overloaded by bigger firms requesting document after document or filing numerous 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 skills in both types of cases (financial and 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 seeks to embody. If an employee senses that a business owner is acting without integrity in their divorce, they may assume the business owner is behaving similarly in the workplace.
The divorce process allows either party to subpoena and request documentation directly from the business. If appropriate, employees may be subpoenaed for a deposition to obtain valuable financial and transactional information for the benefit of the spouse who initiated the subpoena. The divorce process can be disruptive, and that disruption can create uncertainty in a business operation.
The business owner going through a divorce is sometimes strained and challenged in decision-making. This additional stress can lead to business inertia. Inertia can affect business income which can then affect payroll. Sometimes, following a business owner’s divorce, employees are laid off, salaries are cut, or 401(k) matching contributions are suspended or 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 stakeholders, especially employees.
One must be extremely careful to behave in a civil, dignified, and 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, many people who are going through a divorce continue to live together. When children are involved, even if the tone in your home is strained, you have a responsibility to remain civil and mature, especially in front of your children. Any inappropriate behavior is taken seriously by judicial officers. Children must not be exposed to our adult indiscretions. You should never discuss divorce proceedings with your children.
Maintaining civility at home and in your interactions with your spouse is essential. What you do not want to do is inflame the situation; for example, by threatening or assaulting your spouse in any fashion. You do not want to have an additional case (domestic violence), within your divorce.
Keep in mind that 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 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 test your time management skills. Equally important to the counsel of an experienced attorney is how well the attorney can communicate your ability to maintain the custody you are entitled to, to the judge.
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 the individual’s personal and business financial situation.
A divorce attorney experienced in complex divorce procedures 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 are: extracting business valuations and determining which personal expenses are paid by the business, also known as perquisites.
For example, if a high-earning business owner is going through a divorce, it must be determined immediately how to accurately represent the financials to the family 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 a few years to resolve. 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 proactive is sound business practice. 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, assets, and debts must be equally divided between spouses. This is the cornerstone of the family law court.
Also, keep in mind that all assets are presumed community. If a family residence or business was acquired or established prior to the date of marriage, there may be significant valuation and ownership issues regarding communal and separate assets that must be clarified. Another aspect that requires substantial analysis is support. Support may be for child support or for 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, final support amounts are typically somewhat lower than temporary support. Last but not least, financial disclosures and their representations or documentary substantiation are indispensable for attorney fees.
Although there are many reasons to assess attorney fees, two take the highest priority for a business owner: need and ability, and compliance and cooperation. One spouse may need the funds, while the other may have the ability to pay the attorney’s fees. Regarding compliance and cooperation, the divorce court frowns on a spouse who fails to comply or cooperate during the divorce process. A common disciplinary measure used by judicial officers is charging attorney fees to either spouse who fails to comply or is not cooperating.
During a pending divorce, the opposing party or their attorneys may issue a series of subpoenas seeking a wide range 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, a person may be required to appear at an attorney’s office, bring documents, and be examined under penalty of perjury, with a court reporter taking 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 may be connected to the divorce case and 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, which results in poor business.
While a spouse has the right to request extensive documents and information, meeting these demands consumes valuable business resources and can 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 divorce court hearings, depositions, accounting meetings or attorney meetings. Additionally, a court may intervene in a business if deemed appropriate. This may include appointing a receiver (a court-appointed accountant) to oversee operations. Typically, receivers can approve or disapprove key financial transactions. Naturally, having another individual in the driver’s seat of the business can and will wreak havoc on operations.
Finally, because the divorce process is on the public record, any information disclosed, as in some recent high-profile court cases, can lead to a public relations disaster. For these reasons and others, one should seek experienced, knowledgeable counsel during this challenging time in a business owner’s life.
Charles M. Green is a 27-year family law specialist and an active CPA. He is well-suited and skilled to handle and protect the financial and business complexities you may encounter during your divorce in California family law courts.
