With so much attention being paid to the high-profile divorce of the McCourts and what it may do to the Los Angeles Dodgers’ franchise, I felt it appropriate to share some of my expertise in the area of family law and how divorce can impact a company.
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 court hearings, depositions, accounting meetings or attorney meetings. Additionally, a court may thrust itself into a business if deemed appropriate. This includes perhaps placing a receiver (court appointed accountant) in the middle of operations. Typically, receivers can approve or disapprove key financial transaction. Naturally, having another individual in the driver’s seat of the business can and will wreak havoc on operations.
It is absolutely critical you meet with an experienced divorce attorney who can provide valuable guidance at the onset of your divorce. Make sure you select one specializing in family law, not a generalist. The divorce process in 2010 is most challenging. There are thousands of cases and statutes that can be cited in your case. The California rules of Court and the Evidence Code also factor in divorce proceedings. Experts can be called upon by either side to provide testimonies to assert either spouse’s best interests or to discredit the other spouse’s assertions.
Attorneys are different as well. Single practitioners may not have the operational capacity to handle complex and sophisticated transactional or custodial divorce cases. Bigger firms can drown them in documents, filings and hearings. Older attorneys are more experienced than younger attorneys. Real estate and business divorce attorneys are different from custody attorneys. Some attorneys have abilities in both types of cases (financial vs. custody).
Employees can be affected by our personal lives as well. A business owner is responsible for the business’ culture, tone and integrity. The divorce process allows either party to subpoena and request documentation from the business directly. Even the employees may be subpoenaed for a deposition to glean valuable financial and transactional information for the benefit of the spouse. The divorce process can certainly be disruptive which can lead to uncertainty in a business operation.
The business owner going through a divorce is sometimes strained and challenged. This additional stress can lead to business inertia which can affect business income which can then affect payroll. Sometimes, a divorce can lead to employees being laid off, salaries cut or 401(k) matching plans placed on hold if not 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 impacts all stake holders, especially employees.
Financials are at the core of every business. A divorce attorney experienced in complex divorce procedure 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 is extracting business valuation and to determine what personal expenses are paid by the business, otherwise know as “perquisites.”
For example, if a high-earning business owner is going through a divorce, it must be immediately determined how to truthfully represent the financials to the family law 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.
Also, keep in mind, all assets are presumed community. If a family residence or business was acquired or started prior to the parties’ date of marriage there may be significant separate versus communal issues and valuations that must be clarified. Another aspect that requires substantial analysis is support.
Throughout a pending divorce process, the opposing party or their attorneys can launch a barrage of subpoenas demanding all sorts 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, they may be required to appear at an attorney’s office, bring documents, and be put under examination, under penalty of perjury, with a court reporter taking a 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 can actually be connected to the divorce case and be 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, producing poor business.
While a spouse has the right to request extensive documents and information, handling these demands expends valuable business resources and may become extremely expensive.
Finally, since the divorce process is public record, all information divulged, as in some recent high profile court cases, can lead to a public relations disaster. For this and the reasons reflected above, one must seek experienced and knowledgeable counsel during this challenging time in a business owner’s life.
Multiply what was discussed above by a factor of 10 if your business is a well-known company — like the Dodgers.
J. Michael Kelly is the founder and senior partner of The Law Offices of Michael Kelly, a Santa Monica-based law firm which is one of the largest in Southern California specializing in family law. During his legal career, which spans more than 40 years, he has specialized in high profile divorces, child custody disputes and complex, high asset financial settlements.