The sad truth

“For high net worth individuals, getting divorced not only brings with it the usual emotional trauma, it can also be financially devastating,” says Jason R. Marks, a member of the law firm of Kluger, Peretz, Kaplan & Berlin P.L. “Any high net worth individual should use the same approach when getting divorced as they do when making critical decisions for their business. Think with your wallet and not with your heart.”

Smart Business talked to Marks about some of the issues that arise when a high net worth individual goes through a divorce in the state of Florida.

Are the assets of both publicly held and privately held companies subject to inclusion in divorce proceedings?

Divorce can have consequences whether closely held or publicly held businesses are involved, no matter what your job title or position is, no matter whether you’re the plaintiff or defendant. Legally, your spouse is your de facto partner during your marriage; if your interest in your business was acquired during the marriage, Florida law requires that you part with 50 percent of its value when you get divorced.

How does the court split assets?

All assets acquired and liabilities incurred during the marriage by either spouse are subject to equitable division, no matter who the asset is titled to. Court’s have substantial discretion when splitting up assets. One option is for the court to give the owner spouse 100 percent of the asset and give the nonowner some other asset to equalize things; for example cash or equity in real estate.

If the company was formed before marriage, the nonowner spouse gets 50 percent of the company’s enhanced value over the course of the marriage.

In Florida, each party in a divorce is obligated to exchange financial affidavits that show the party’s incomes, expenses, assets and liabilities. In determining the value of a business, sometimes you will need to go back in the records to find the company’s value when it was formed or acquired, when the marriage occurred, and at the date of the filing of the divorce petition.

How can a person avoid having business assets be the object of a divorce proceeding?

Two words — prenuptial agreement. Prenups are a high net worth individual’s best friend. Courts will uphold these agreements, as long as they were entered into freely and voluntarily and with full financial disclosure.

In a prenup, the nonowner spouse can agree that he or she will not share in any of the owner spouse’s share of the business, and the business will remain intact upon the dissolution of the marriage.

Before you get married, you should consider a prenup that allows you to do on the front end what is difficult to do on the back end — that is, cut a deal. For better or for worse, at least you will know what you are getting in the event that your marriage breaks down.

The only other way to limit the impact a divorce will have on your business is to figure out an approach to extricate the business from the conflict. Once the nonowner spouse understands what the value of the owner spouse’s interest is in the business, he or she can then begin to assess what other assets he or she may want in its place. The problem for the high net worth individual is when the business is all you’ve got to give.

Can a divorce clause be included in the documents of incorporation when partners are involved?

It’s important for companies to understand that whether they like it or not, the company will be involved when one of the owners or partners goes through a divorce. The court will require documents from the business, even when other owners or partners may not want the nonowner’s accountant rummaging through confidential, proprietary financial information.

The governing documents of the business/partnership can state that no owner/partner can convey away his or her stock or assign the stock to a spouse as security to meet any other obligation in the event of a divorce and contemplate what will happen to the business if an owner/partner does. The objective is to ensure that the business/partnership remains intact if an owner/partner later gets divorced so that the ongoing operations of the business are not effected. To view the article, please click here.

JASON R. MARKS is a member of the law firm of Kluger, Peretz, Kaplan & Berlin P.L practicing in the litigation and dispute resolution department, focusing on matrimonial and family law. Reach him at (305) 341-3152 or jmarks@kpkb.com.