Seek Corporate Counsel During Divorce

Posted by Jeffrey N. Berman on

If you own a company and are going through a divorce, be sure to take precautions to ensure that your corporate interests and assets will not be compromised by your divorce. Of utmost importance is the Settlement Agreement. During emotionally and financially burdensome times, it is often beneficial to engage a corporate attorney to assist the divorce attorney. By doing so, you will ensure that the company you built and your rights to the company are properly protected in the Settlement Agreement.  

Just as I am not a specialist in family law, it is also fair to recognize that some family law attorneys have limited experience with corporate transactions. Often, the “devils” lurking in what seemed to be harmless details during the Settlement Agreement can cause tremendous troubles in future transactions. Any one of our corporate attorneys will recognize potential issues immediately and discuss them with you before you sign on the dotted line.  Below are some real-world scenarios in which a corporate attorney would have proven very beneficial:

  • A client engaged BFV to negotiate and document the sale of his company. According to the client’s executed Settlement Agreement, he received all of his ex-spouse’s ownership in their jointly owned company. Unfortunately, however, the Settlement Agreement presented several impediments to the sale. As part of the settlement, the client gave the ex-spouse a promissory note, a common practice which was secured by the stock the ex-spouse transferred to the client.  However, in this scenario, the client needed the ex-spouse’s consent for the sale.  As could be expected, the ex-spouse would not consent to the sale unless she received a portion of the sales proceeds in excess of the amount she should have received based upon the Settlement Agreement – an impediment that could have been avoided upfront with the involvement of seasoned corporate counsel.
  • BFV was engaged to review an executed Settlement Agreement in conjunction with an agreement under which the client sold his company.  The Settlement Agreement provided that over time, the client would pay a portion of the gross sale proceeds received to the ex-spouse. The Settlement Agreement also provided that the gross sales proceeds would not be reduced by subsequent payments made by the client as a result of any indemnity or similar obligation which arose in connection with the sale of the company. Of course, the sales agreement contained indemnity provisions and the client had to pay a substantial sum due to the indemnity provisions. Unfortunately for the client, the ex-spouse did not suffer any corresponding reduction in the amount she was due.  
  • In a recent situation, BFV was engaged to help a client obtain a working line of credit. As would be expected, the proposed lender wanted a 1st priority security interest in the client’s company’s assets. Unfortunately, the client allowed his company to pledge its assets to the ex-spouse as security for payments due to the ex-spouse under the Settlement Agreement.  Consequently, the ex-spouse forced the client to buy her consent to subordinate the ex-spouse’s security interest in the company’s assets.

The reality here is that every issue and outcome above is foreseeable to an experienced corporate attorney. It was no surprise that these clients had wished they had engaged a corporate attorney to review the corporate provisions of their respective Settlement Agreements.  If your family law attorney does not specialize in corporate transactions, consider the services of an experienced corporate attorney to negotiate and draft the corporate portions of your Settlement Agreement.