Divorce and the Small Business Owner

Deborah L. Cohen writes for Reuters about Divorce and the impact on small businesses.  Ms. Cohen points out that when small business owners go through a divorce, their attention is distracted from their business, causing financial impact on the business which may already be distressed due to the downturn in the economy. Cohen points business owners to four ways to protect themselves: 1) a will, 2) a premarital agreement, 3) buy/sell agreement, and 4)  an entity to hold the business in trust.

Although Ms. Cohen's points are valid -- divorce does have a significant impact upon small businesses, I disagree with her points for protection.  To me, the biggest impact of a divorce on a small business is the distraction the divorce and personal problems in general cause on the business owner.  When a business owner's focus is diverted, the business can dwindle.  To counteract this problem, the business owner should work very hard to find an attorney to handle his divorce who has experience with small businesses and who he feels comfortable with.  That way, the business owner can focus on running his business and allow the divorce lawyer to focus on the divorce as much as possible. 

Although it is a good idea for anyone to have a will, a will has no effect in a divorce.   A buy/sell agreement is also of questionable effect in a divorce in Texas since such agreements usually only bind the business owners and not the spouses.  Such agreements, to be enforceable, would need to comply with the rules regarding post-marital agreements.  LIkewise, placing a business into a trust could be frowned upon in divorce court and considered fraudulent to the marital estate by depriving the marital estate of a very valuable asset.

Modern Marital Monogamy

A new book argues that if the institution of marriage is to endure, it must evolve with the times.

With infidelity now seeming less like a deadly plague and more like a relatively mild form of cancer—we all know someone who has suffered from it, even if we haven’t experienced it ourselves—does it still make sense for monogamy to constitute the basis for marriage? Or should couples figure out creative ways to expand the boundaries of their relationships, acknowledging that they might want to continue to be life partners even if one or both needs the occasional night off? This is the argument of Pamela Haag’s new book, Marriage Confidential: The Post-Romantic Age of Workhorse Wives, Royal Children, Undersexed Spouses, and Rebel Couples Who Are Rewriting the Rules, in which “affair-tolerant” couples aren’t a regressive throwback—they’re the benchmark of a new kind of modernity. Its abundance of gimmicky catchphrases aside, this book asks serious questions about whether we have come to expect too much from contemporary marriage: a partner who is simultaneously an emotional and intellectual “soul mate,” a monogamous provider of sexual thrills, and a best friend to see us through our creaky final decades. If marriage has a hard time living up to these burdens—and a divorce rate holding steady at 50 percent suggests just how hard it is—maybe we ought to be thinking about ways to transform it.

Haag notes that marriage has undergone a dramatic transformation from the “traditional” partnerships of the nineteenth century, when marriage was “a social institution and an obligation,” to the “romantic” marriages of the twentieth century, when the practice of choosing a partner for reasons of love rather than practicality first became widespread. Now, she argues, we are moving into a “post-romantic age.”

In a series of chapters examining monogamy alternatives that range from asexuality to open marriage, the only real target of her scorn is the serial monogamist, who’s “always convinced that he’s in love with the next girlfriend … and that it will be different for them, in this marriage, this time around.” If he’d stop chasing this fantasy of romantic love, she reasons, he could maintain an intimate partnership with his wife—even if only for the sake of their kids—while enjoying a discreet dalliance now and then. In this vision of marriage, the happiest couples might well be the “infidelity tolerators”: those who can accept a one-night stand or three as long as the marital bond is the primary relationship.

The problem isn’t only that “infidelity tolerance” is a slippery slope: One day, you’re quietly overlooking a suspicious text on your husband’s phone, the next you’re fielding questions from the news media about his love child. It’s also that this “post-romantic” view of marriage isn’t entirely convincing. Granted, it’s impossible to know what goes on within the privacy of other people’s marriages. But, while they may be getting rarer and rarer, we all know couples who seem to be happily, enduringly married: the elderly couple who hold hands in the street, or the assisted-living resident whom I once heard proudly brag that she and her husband had had sex every day of their marriage. “What is a mystery to me,” Haag confesses, “and a thing of beguiling beauty, is the genuinely sexually contented long-term marriage—a monogamous dam lovingly constructed to manage the wayward lusts of nature.” Unfortunately, it’s the one phenomenon of contemporary married life that she chose not to investigate. But the fact that it still exists suggests that the old rules might have some value yet.

Excerpted from Ruth Franklin’s (at The New Republic) article “Can (This) Marriage Be Saved?


 

Divorce Business Valuation Article

 

Proper Evaluation of "Goodwill" of a Business During Divorce
Posted by Michelle May O’Neil on May 23, 2011

 

This article deals with people who own a service business and are the focal point in their business. In most states the assets owned by an individual going through a divorce must be valued. This includes a business that one spouse may own. The value of the business may include both tangible assets and intangible assets. The majority of the value of the intangible assets may be related to "goodwill". Goodwill is defined as the characteristics of a business or individual that cause customers to return to that business or person.

 

In many cases, the value of the business or practice is determined based on the earning stream of the business. The concern to the spouse who owns the business, and who also has a spousal support obligation is that the earning stream used to value the business is also used to pay the spousal support obligation. This is what is called the "Double Dip Theory".

In many states, this situation is avoided when the portion of the business that is related to "Personal Goodwill" is excluded from the value of the business, or "Enterprise Goodwill". Thus, it is very important to identify and differentiate Personal Goodwill from Enterprise Goodwill.

 

These two types of goodwill can be defined as follows:

  • Enterprise Goodwill is associated with the entity itself. It takes into consideration issues such as location, qualified workforce, required licenses, name, etc. The key is that the value of the business is separate from the individual owner.
  • Personal Goodwill is associated with the individual. It takes into consideration the individual's age, health, personal reputation, training and effort. Customers return to the business because of the individual. The value of the business does not exist absent the individual.

The key is whether the Goodwill can be sold or transferred independent of the individual. Generally, Enterprise Goodwill is considered to be "saleable", but Personal Goodwill is not. Here is a simple check list to determine Personal Goodwill or Enterprise Goodwill:

  • Is the value of the business or professional practice inseparable from the actions, skill, the expertise and reputation of the individual owner?
  • Is the value of the company, other than the hard assets, such that it cannot be Transferred without the individual?
  • Can the economic benefits of the company to be transferred be realized only through the performance of post-divorce services of the individual?
  • Is the revenue or the ability to acquire future income tied directly to the efforts of the individual?
  • Is the ability of the entity to attract referrals separate and apart from the persona of the individual?
  • In summary, make sure that your divorce attorney is aware of the key aspects of your business and the importance of you, individually, to the success of the business in an effort to avoid the perils of the Double Dip.

Hat tip for this article to Bruce Richman (CPA/ABV, CVA, CDFA™), author of the book Guide to Tax and Financial Issues in Divorce.

 

For more articles on assistance regarding business valuation, visit http://www.divorcemag.com/articles/Business_Valuation/.

Best Divorce Lawyers in Texas listed in Texas Monthly

Michelle May O'Neil has been named one of the best divorce lawyers in Texas by Texas Super Lawyers Magazine.  The list of best lawyers in Texas will appear in the October issue of Texas Monthly Magazine. See the listing below:

www.dallastxdivorce.com/uploads/file/Superlawyers ad.pdf

Note on Annulment

Posted by Michelle May O'Neil on June 27, 2011

Although annulment is not as popular an option as it once was for ending a marriage, there are still times that we have people inquire as to whether they can annul their marriage.  In our book, Basics of Texas Divorce Law, we briefly cover the topic of annulment.  The excerpt below is helpful information to those curious about annulment.

Annulment

     A suit for annulment, as apposed to a suit for divorce, is brought when there has been some legal impediment to the creation of a valid marriage; that is, the suit is for premarital causes rather than conduct that occurred during the marriage (as in a divorce).  Annulments have declined in popularity because in 1970 the Texas Legislature adopted no-fault grounds for divorce which made getting a divorce far easier.  Today many people pursue annulments for religious reasons.

     There are four general grounds under which an annulment is possible. 

     1.  A court can annul a marriage if a party to the marriage was at least 16 years of age, but less than 18 years of age, at the time of marriage and did not have parental consent or court-ordered permission to marry.  Note, however, that an annulment under this ground is discretionary and the court must consider facts relevant to the welfare of the parties to the marriage (for example, whether the wife is pregnant).

     2.  A court can also annul a marriage if at the time of the marriage the person seeking the annulment was under the influence of drugs and/ or alcohol and as a result lacked the capacity to consent to the marriage.  Also, the person seeking annulment cannot have voluntarily continued to live with the other party since the effects of the drugs/ alcohol ended.  Note that we're not talking about a simple case of having a few drinks and then getting hitched.  Texas courts have held that the degree of intoxication must be so great as to have "dethroned reason, memory and judgment."

     3.  Another ground for annulment is impotency.  A court can annul a marriage if either party was permanently impotent at the time of marriage and the person seeking annulment did not know of the impotency at the time of marriage.  Also, the person seeking annulment cannot have continued to voluntarily live with the other person once they learned of the impotency.

     4.  Fraud, duress and force are additional grounds for annulment.  A court can annul a marriage if one party used fraud, duress or force to induce the person seeking annulment into the marriage.  Just like the other grounds for annulment, the person seeking annulment cannot have voluntarily continued to live with the other party since learning of the fraud or being freed from the duress or force.

     These are the grounds most people think of when considering an annulment.  Once an annulment is granted, the marriage will be considered void and treated as if it never happened.  If an annulment is not granted, then the marriage will be considered valid indefinitely and the parties must seek a divorce to end it.

Moving Through Your Anger During and Post Divorce

     Anger is normal and healthy.  It is one of the five stages of the entire grief process (along with denial, bargaining, depression, and acceptance).  Not only is anger healthy, it is even considered to be an essential part of grieving. As uncomfortable as it can be to feel so angry, it is crucial to allow yourself to go through this phase.

Anger can be a very scary experience, regardless of whether it’s your own anger or anger that is directed at you. For this reason, many people try hard to avoid it. Yet feeling angry is not wrong. It’s what you do with your anger that determines whether it is constructive or destructive.

     Using anger in a constructive way, such as to stand up for and take care of yourself and your children can actually serve you well. On the contrary, screaming and raging can damage relationships and self-esteem and is, therefore, destructive.

     Another expression of anger not discussed as often as screaming and raging is the kind of anger in which someone seethes for years. This is the person who cannot get over the wrongs that have been done to her or him, and self-identifies as a victim. Although it may feel powerful to wield your anger over someone, it is actually quite disempowering, because you are spending your valuable time and energy thinking about the person with whom you are angry. The act of focusing on that other person is sometimes called “giving your power away.”

     Because divorce is such an intense experience, fraught with feelings of rejection, failure, and mistrust, it is a situation in which people have the potential to stay angry for years. They may resent the fact that they have had to return to work, or that they now have the burden of child care responsibilities, or that they have no hope of having children anymore and feel that they “wasted” valuable years with their ex-spouse. Perhaps they trusted someone who was untrustworthy and now their anger is directed at themselves as well as at their spouse.

     There are endless scenarios and reasons why people can become—and stay—angry, but if you do stay angry, you should know that the toxic emotion is in you and the other person may have no clue that you are feeling the way you do. It is always in your best interest to move beyond feeling high levels of anger.


This article has been edited and excerpted from Stronger Day By Day with permission by New Harbinger Publications, Inc, copyright © 2010, written by Susan Pease Gadoua