Financial Guide: The Family Business

1. Introduction

2. Psychological Warfare

3. Property in General

4. Maintenance / Alimony

5. Modification

6. Specific Assets

7. The Marital Home

8. The Family Business

9. Tying it All Together

10. Post Tax Outcome

11. Maintenance for Property

12. Closing Thoughts

13. About the Author

The Family Business

If all divorce lawyers asked to identify their most perplexing cases many, if not most, would point to disputes relating to business interest. Because this topic is potentially so broad and complex, I will not even attempt to cover it fully in this guide. Instead, my objective here is to familiarize you with the key issues and in doing so, to give you a sense of the court’s perspective(s).

First, let me give you the context in which these disputes often arise. Obviously all such cases involve businesses which exist at the time of the divorce. In some cases, however, these enterprises existed prior even to the marriage. More commonly, however, at least among marriages of long duration (10 + years), the business is commenced during the marriage.

A not uncommon exception to this rule however are cases in which disputed business was created and developed by the family of one of the spouses and is perhaps still generally regarded as that family’s business. In such cases the marital interest in the business is often a fraction of its total ownership.

Back to the more common scenario in longer marriages – i.e. cases where the business is commended during the marriage – typically the business is almost entirely the creation of one of the spouses, typically the husband.

Before you accuse me of being reckless in my assumption, let me explain. Successful businesses are created and developed by entrepreneurs, by uniquely dynamic, imaginative and driven individuals whose dreams becomes their obsessions (which, by the way, might explain in part his divorce). While I have seen cases in which both parties seemed to have contributed equally to the success of a business, these are rare.

Let me use an admittedly grandiose illustration to help explain this point. As a simple matter of probability, what are the chances that a 25-year-old Martha Stewart would meet and date a 25-year-old Donald Trump. Now multiply that improbability by the remote chance that two such entrepreneurial personalities would even desire to marry someone so like themselves. While people clearly seek to marry people with similar interests, they just as clearly (and thankfully I might add) seek to marry those with decidedly dissimilar personalities.

When viewed from this perspective, it makes sense that the entrepreneur with his assertive, sometime overwhelming qualities is prone to marry someone amerable to these traits (and of course visa versa).

All this is not to say, however, that the spouses of such entrepreneurs do not participate in the business. In fact, they may play key roles ranging from administrative responsibilities to sales and marketing. While the extent of participation may vary, it is very unusual for a spouse to contribute no assistance to the marital business, particularly in those early formative years.

In light of the usual relative roles of each spouse in the marital business, it is understandable that in a divorce the husband/entrepreneur often resents the principles governing marital property law. Clients have paced about my office as he vented with frustration his sense of injustice.

Up to this point I have spoken somewhat nebulously about this thing called a “business”. Before going further you should understand what is meant for our purposes by that term and the various forms such enterprises may take. In the process, for reasons of brevity and relevance (and in very small part, indolence) I will take care to go no deeper in this discussion than the subject necessitates.

From the perspective of a divorce court, a business is simply an enterprise relating to a service or product that has, is, or is expected to generate a profit. Such an enterprise can assume several forms. For our purposes I will discuss only the primary three.

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