A C-suite executive or shareholder may face a unique set of issues in a divorce due to his or her high net worth and ownership interest in the company. Careful consideration of these issues and proper planning is necessary to protect the divorcing spouse’s interests while also minimizing the financial impact on the company. If you or your spouse is a C-suite executive or shareholder and you are considering divorce, you may want to find a lawyer who understands the unique issues you will face. The experienced divorce attorneys at the Colorado Divorce Law Group understand divorce issues for C-suite executives and shareholders and may be able to help you navigate the divorce process while protecting your rights and your business. Consider calling the experienced family law attorneys at (720) 593-6442 to schedule a consultation, and learn more about your legal rights.
The high net worth of C-suite executives and shareholders and the often complex benefits they receive create a unique set of considerations for the division of assets in a divorce. Some of the assets to consider include:
In addition to his or her salary, a C-suite executive may receive bonus payments, retirement savings, health insurance, life insurance, and other benefits. All elements of the executive’s compensation package are included in calculating his or her total annual compensation. The factors that are used to determine each spouse’s right to this compensation include:
According to the American Bar Association, the details of the executive’s compensation plan might not be found all in one place. Pay stubs, income tax returns, and employee handbooks are just a few of the places to look when determining the value of the overall compensation package.
Executives can also receive compensation in the form of company shares and options, and shareholders may hold stock in various companies. Due to the ownership rules that define this type of asset, company shares, and stock options often cannot be divided in the same way other assets are divided in a divorce. Since shares are often non-transferable, a divorcing couple may be required to continue holding some assets jointly after they divorce. Additionally, some shares are paid according to a vesting schedule that is tied to the company’s performance. If these vested shares were awarded during the marriage, they will have to be divided at the time of vesting, even if this occurs after the divorce.
High net worth individuals are likely to hold a significant amount of assets in the form of real estate, financial investment accounts, and personal property. Due to their high value, all assets must be accounted for and valued so that they can be divided equitably in the divorce process. The tax implications of this division can be significant and must also be considered.
The divorce of a company executive or shareholder can have a significant impact on the company itself in any of the following ways:
An executive or shareholder’s share of the company is often tied to his or her decision-making power. Executives, therefore, usually hold a significant share of the company in the form of stocks. If they have to sell off or transfer a portion of their ownership in a divorce, they are effectively decreasing their decision-making power in the business.
A divorce can have a negative impact on the financial situation of most spouses. For an executive or shareholder with a high net worth, this impact can be much more significant. An individual who is facing a loss of wealth may become more risk averse in an attempt to preserve the wealth he or she has left. In the case of an executive or shareholder who is involved in the financial decision-making for the company, this risk aversion may transfer to the way he or she assesses business decisions. This has been proven in several studies, with one study finding lower equity risk and lower volatility in cash flows in the year of a CEO divorce.
High-powered executives and shareholders are humans like everyone else. A divorce can be one of the most stressful events in a person’s life, and this can have a negative impact on his or her productivity and attention at work. Since executives and shareholders are key decision-makers in a company, their reduced productivity and attention can have a significant impact on the company’s profit margin. In fact, nearly a third of CEOs retire within two years of divorce, reflecting their lowered productivity and value to the company during and after the divorce.
As seen in the cases of many high-profile divorces, public opinion can have a significant impact on a company’s valuation. Although most people try to keep divorces private, if a divorce case goes to court, it becomes public information. When the divorce of a high-powered executive or shareholder goes public, it may negatively impact the company’s share prices.
The experienced lawyers at the Colorado Divorce Law Group understand the many divorce issues for c-suite executives and shareholders. They can assist executives and their spouses in planning and preparing for a divorce to minimize its potential impact on the company.
With careful consideration of the above issues and proper planning, the financial impact of an executive’s or shareholder’s divorce on the business can be minimized. Some of the best ways to plan for a possible divorce include:
According to the American Bar Association, a prenuptial agreement is a contract signed prior to marriage. An up-to-date and carefully considered prenuptial agreement can protect the rights of divorcing spouses as well as the business. Provided that the prenuptial agreement is enforceable, it can cover most of the decisions related to the division of assets in the divorce and can even prevent a non-executive spouse from claiming any equity in his or her spouse’s company in the event of a divorce. In Colorado, the law imposes strict requirements in order for a prenuptial agreement to be enforceable. It’s best to speak with an attorney if you are contemplating marriage, or better yet, contemplating engagement, to discuss a prenuptial agreement.
A company may put a shareholder agreement in place to protect itself in the event of an executive’s or shareholder’s divorce. The agreement may include rules that:
Spousal consents are another measure that a company can put in place to protect itself in the event of an executive’s or shareholder’s divorce. Spousal consents are usually used together with the shareholder agreement. They authorize the executive or shareholder to act on behalf of both spouses and contain provisions relating to how the non-executive spouse’s share of the company will be affected by a divorce. However, these types of agreements may have to pass rather strict scrutiny in the eyes of a Colorado court to be enforceable.
C-suite executives and shareholders face a unique set of issues in a divorce. Due to significant ownership rights and decision-making authority in a company, a divorce can affect not just the executive’s personal life but also his or her business. The division of assets for this type of divorce can be a complex task with significant tax implications. To protect the rights of executives or shareholders and their spouses in a divorce, a skilled attorney will understand how to effectively navigate divorce issues for C-suite executives and shareholders. If you or your spouse is an executive or shareholder and you are contemplating divorce, consider contacting an experienced attorney at the Colorado Divorce Law Group by calling (720) 593-6442 to schedule a consultation.