Divorce and the Entrepreneur: Part 2

Hi there,

Massachusetts is an equitable division state. This means that all property, whenever and however acquired, may be subject to division as well as utilized for support in a divorce case.  If you are an owner or a shareholder in a closely held business and are facing divorce, you need to be braced for the discovery that will soon be headed your way.

office filesThe documents which are considered basic and minimal in order  to value both the business and determine the owner’s true income with perks, are often some of the most private documents of the business.  At least five years of tax returns, audited or unaudited financial statements, buy/sell agreements, offers to sell or buy the business, inventories, insurance policies, customer lists, patents, the list goes on and on.  It is a good idea to have either in-house counsel (if you have them), or hire outside counsel, perhaps referred to you by your divorce attorney, so that the proper protections for the business during the litigation can be put in place.  At the very least, a confidentiality agreement should be signed and approved by the court before the documents are produced.

Most valuation experts and forensic accountants will want to visit the premises of the business.  This can be, understandably, disruptive and intrusive.  You want to be sure the terms of the access are set in writing through all of the attorneys before the actual visit occurs.

If a forensic accountant is being used in addition to a valuation expert, then it is probable that your spouse believes that some sort of fraud, up to and including tax fraud, has occurred.  If tax fraud is indeed a question, you need to also consult a tax attorney BEFORE the discovery occurs and preferably before you have filed financial statements in the court process.

All of this is intrusive and it can indeed be demoralizing, but it is necessary and is one of the areas where cooperating swiftly and cleanly saves you untold trouble and expense in the end.