Business Owners and Litigation
July 18th, 2012
Divorce is a particularly challenging time for a couple, even more so when there is a family-owned business or other business interest involved. In contentious divorce proceedings, there is a high degree of uncertainty, and the parties are unable to maintain control over many important decisions, which will inevitably affect the future and vitality of their business. In addition, private business information becomes a matter of public record, and productivity may be affected due to the parties’ emotional strain and the time commitment involved in settling contested issues in court. In the end, a great deal of time and energy is expended, and the result is often one in which neither spouse is satisfied.
Business Valuation - Litigation
When filing for divorce, one of the first challenges a couple may face is determining the value of the business or business interest. With traditional adversarial divorce proceedings, both spouses would likely hire a business appraiser to ascertain the value of the business. These “dueling experts” each undertake an independent analysis of the business. The process can be intrusive and disruptive to daily operations. In addition, hiring separate business appraisers is expensive. The valuation experts are retained by each spouse individually to represent his or her interests, thus not neutral. The result is frequently two competing estimates of the value of the business. The final valuation must then either be negotiated between the litigation attorneys, which may or may not include the clients themselves, or if no agreement as to value results, then the value of the business is argued before the court in a trial. The trial produces additional financial and emotional expense, not to mention the effect on the business, itself. Once the case goes to the judge, the final decision is completely out of both party’s hands and each party must either accept the ruling, appeal it (resulting in more litigation) or go back to find a way to compromise through more negotiation.
Business Owners and Collaborative Divorce
For divorcing couples who own a business, collaborative divorce may offer a more suitable remedy. The process responds to the reality of owning and managing a business, and the end result is often more enduring and satisfying for both parties. The parties have an active role in decision-making. This role is minimized by the breakdown in trust and the animosity created by litigation. The case actually takes on a life of its own.
Business Valuation – Collaborative Divorce
Business valuation in a collaborative divorce setting can be structured to arrive at a reasonable and accurate reflection of the value of the business in a way that reduces emotional strain and financial expense. In the initial stages, the parties agree to fully disclose all assets and liabilities associated with the business, which minimizes the need for formal discovery and the game-playing which is part and parcel. The parties then decide on a business appraiser, who is jointly retained as a financial neutral and does not represent either party. Rather, the appraiser is committed to the collaborative process and is focused on arriving at a result that is in the best interests of the family and the marital estate. In some cases, especially if the size of the business is substantial, the financial neutral may recommend a joint expert to ensure the accuracy of the valuation report. Like collaborative attorneys, those involved in appraising the business must agree in writing that, if the collaborative process breaks down, the appraiser will not participate in any subsequent litigation related to the divorce. The valuation report is likewise inadmissible as evidence in court and will remain free from public disclosure. Under these conditions, the parties are more likely to be open and honest with the appraiser concerning the business and its value. In the final analysis, the valuation is more often an objective assessment of the business’ worth, and the end result usually involves less time and expense. Business information remains private, and the parties are able to retain a greater degree of control over the process and eventual outcome.
On a personal level, the dissolution of a marital relationship inevitably involves complex emotional challenges, which are likely to distract both parties and consume valuable time, which takes away from attention that might otherwise be directed towards the business. Collaborative divorce offers an alternative to contentious divorce proceedings that devastate families and destroy other important personal relationships. It focuses on the future and assists in rebuilding trust between the divorcing couple. With collaborative divorce, couples are able to involve the assistance of professionals, including mental health professionals serving as divorce coaches who help them in dealing with the emotional issues which are almost always a part of divorce. With the assistance of divorce coaches, the couple is encouraged to settle differences in a respectful, dignified manner minimizing emotional strain and promoting healthy personal relationships. Parties are able to focus on the future and make important decisions based on sound logic and reasoning, rather than emotional knee-jerk reactions. In this way, each spouse is able to voice his or her concerns, and the result is more likely to be an effective response to the needs of each party.
For important life transitions such as divorce, Attorney Danielle Smith believes the Collaborative Process can bring about the most effective, satisfying and enduring results for clients with a family business or other business interests. At Michigan Divorce Options, we encourage and nurture a close relationship with our clients by providing honest communication and information on all available alternatives. We assist clients in giving consideration to the future rather than enflaming the inherent turmoil and pain of divorce. Contact us today to discuss your options.