Special Considerations When Entrepreneurs Divorce

As many studies have shown, couples in which one spouse is an entrepreneur have a high rate of divorce. Whether it’s because the business encompasses much of entrepreneurs’ time, or because the non-entrepreneur spouse feels neglected, divorce is common.

While divorce is already a complicated process, generally, entrepreneurs have a special set of considerations when divorcing. As such, it is important to consult your family law attorney regarding the special financial concerns you may assume as an entrepreneur or the spouse of an entrepreneur.

For starters, as Massachusetts looks at property division in divorce under an equitable distribution standard, marital property and separate property are equally considered. Regardless of whether a business was started before a marriage, during a marriage, or even with an ex-spouse, it is important to know what rights you have in your company, and what your company is worth.

When divorcing, family law attorneys will ask their client to bring forth all assets, so that property can be distributed equitably. For entrepreneurs, your business may be your biggest asset. If this is the case, there is a good chance your former spouse would like a portion of your business during settlement. When the divorce proceedings begin, it is important to know exactly what your business is worth. While estimating this number is helpful, disclosing the actual figure can help divorce proceedings run more smoothly.

Before having your business appraised, it is in your best interest to have a third party, who is not connected with you or the business to perform this type of unbiased work. If you are being represented by a lawyer, ask your family law attorney if they know of any accountants or business appraisers who could assist in these efforts. An appraiser will be able to effectively run through all of your invoices, books, company property, and other assets in order to arrive at the correct figure for the worth of your business.

If you are the ex-spouse of an entrepreneur, it is important that you make certain your business owner ex-spouse is not concealing assets, hiding contracts, or bringing forth a fraudulent appraisal. Is it possible that your ex could be swindling you out of hundreds, thousands, or even millions of dollars? Consult with an attorney to confirm that any appraisal and valuation of the business is valid.

The next step for entrepreneurs is to consider what comes next for their business. As this is likely a valuable divorce asset, a business owner spouse is forced with the decision on whether to sell, retain or split the assets with their soon-to-be ex-spouse. If a business was established prior to marriage, there is more uncertainty about how much money your ex will receive. However, it is very likely that if the business began during the marriage, both spouses will have rights to it. In an equitable distribution state, a court considers many factors such as length of marriage, educational background, profession, and financial responsibility among other things.

Additionally, if this entrepreneurial venture is a partnership or a closed corporation, it may be necessary to consult the partnership agreement and/or by-laws. It is possible that these contractual agreements may disclose information pertinent to what occurs if one partner gets divorced. There could be further cases where a person may want to buy their former spouse out of a business. If you find yourself in this situation, it may be possible to give your former spouse a promissory note, so that he or she is financially satisfied after being bought out of the business.

Also, if you and your ex-spouse were in business together, it is possible that a prenuptial agreement or partnership agreement could disclose what business assets are disclosed to what spouse. If this arose in a prenuptial agreement, either spouse can challenge, potentially, the validity of the agreement. A prenuptial agreement may be invalid if a spouse did not have proper time to consult with their own individual attorney when the agreement was signed, or if the agreement was signed under duress, among other possible reasons.

Overall, if you and your former spouse are amicable, working through a divorce for entrepreneurs can be as simple as coming together and negotiating this specific property division. As this would be a simpler, less expensive to get what you want out of a divorce agreement, attempt negotiation before going to court.

If you need more information about entrepreneurship and divorce or about family law generally, you may schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete a contact form and we will respond to your phone call or submission promptly.

How are Social Security benefits and pension/retirement plans treated for purposes of property division and alimony payments?

Robert and Mary, a Massachusetts couple, have been married for ten years and now want to proceed with obtaining a divorce. During the marriage, Robert worked and Mary took care of the home. They had no children. Because Robert has a pension plan, the question comes up: how does a court handle Social Security benefits and pension/retirement plans in property division and alimony?

In Massachusetts, the property in a divorce is subject to an “equitable division.” This does not mean that each party to the marriage receives an equal share of property in the marriage. Rather, each party to a marriage receives fair and equitable amounts of property, so that each party can experience a similar lifestyle to which he or she grew accustomed during the marriage.

A pension earned during the marriage is generally considered to be a joint asset of both parties, and would likely be equitably divided via a qualified domestic relations order. This is an order that is filed with the Massachusetts Family Court and if approved is given to the administrator of the pension, so that the pension maybe divided between the parties. The division of a pension may be a complex issue because pensions, also including IRA or 401(k) accounts, are not always equal in a dollar for dollar manner, as there may be penalties and taxes associated with them. A family law attorney can help evaluate and value the numerical amounts to handle this complexity on your behalf.

Retirement accounts are also considered to be marital assets in a divorce. As such, retirement accounts would be divided on an equitable basis. This issue becomes complex, however, because the parties must look to the length of the marriage. For example, in the case above, Robert and Mary were married for ten years. Suppose, therefore, that Robert continues to work for another 30 years. His payment to Mary would be one half of the quarter of the account, because his payment is one half of his working life during the marriage.

Alimony is different from property division in a divorce. Alimony is court-ordered support from one spouse to another and is separate from the equitable division of property. In Massachusetts, there are four types of alimony: (1) General Term alimony (provides regular support for a length of time based on the length of the marriage); (2) Rehabilitative alimony (provides regular support until the ex-spouse is able to be self-sustaining); (3) Reimbursement alimony (provides regular or one-time support for a shorter marriage to make up for costs that the ex-spouse paid in supporting the other spouse); and (4) Transitional alimony (provides regular or one-time support).

If a judge decides to award alimony under the common General Term alimony standard, then he or she will review the following factors when deciding whether or not to award alimony or for how much the alimony award should be assigned: the length of the marriage; age of the parties; health of the parties; income, employment and employability of both parties, including employability through reasonable diligence and additional training, if necessary; economic and non-economic contribution of both parties to the marriage; marital lifestyle; ability of each party to maintain the marital lifestyle; lost economic opportunity as a result of the marriage, and other factors the court considers relevant and material.

Robert and Mary were married for ten years, and the facts indicate that Robert was the sole working person in their family unit. As such, alimony payments would likely be awarded to Mary from Robert. Depending on the type of alimony that the Court determines that Mary would receive, Mary would likely be able to receive alimony payments until Robert’s retirement age. The Massachusetts family court may review several factors in awarding alimony payments to Mary, such as her health and disability (if she has issues such as these), marital lifestyle (she was able to stay at home), and her contribution to the family unit (lost opportunity to work, for example).

If a Massachusetts Justice decides to use this equitable factors approach under General Term Alimony, then the Justice would likely order that Mary receive alimony for seven years, unless Mary remarries or if Robert passes away or if Robert reaches full retirement age. If Mary cohabitates with someone else and has maintained a common household with another person, then Mary’s alimony payments could be ordered to be ceased. It is important that a payor spouse, like Robert, not arbitrarily discontinue payments without the approval from a Massachusetts Justice.

If you are seeking a competent family, pension, retirement, or alimony law lawyer or domestic relations attorney, please contact our offices by phone at 978-225-9030 during business hours or complete a contact form on our website. We will respond to your phone call or submission promptly, and you may schedule a free consultation with us.

What constitutes marital property in Massachusetts?

Marital property is distributed in Massachusetts divorce cases under the “equitable distribution” standard. Unlike some other states with “community property laws,” Massachusetts courts divide marital property by in an equitable, or fair, manner.

In Massachusetts, marital property includes all items, interests, and possessions attained by a couple during their marriage. Marital property in Massachusetts is not considered to be property that is acquired by any party before the marriage began. Property that was acquired before the marriage began is typically considered to be separate property that is not divisible by the court.

Separate property

Under some circumstances, it is possible that separate property may be considered to be marital property. Take, for example, a long-term marriage where the parties’ separate property is quite imbalanced: one spouse entered the marriage with considerable assets, while the other had few assets at the time. The parties may have become accustomed to a certain standard of living during their marriage, and the judge may consider some separate property (acquired prior to the marriage) to be marital property, in the interests of fair and equitable division. This consideration is dependent on the facts and circumstances of each individual divorce case. It is important to speak with a competent divorce attorney about this issue of marital and separate property, as this may impact your individual case.

Division by agreement

Parties in a marriage may decide that they want to divide their property on their one. This is done by agreeing on which property to divide. Once an agreement is made, it is written down as a “property settlement agreement.” With the agreement to divide property, parties submit the agreement to a Massachusetts Probate and Family Court. The judge then considers the agreement in the final divorce order. A judge would likely support a fair and reasonable distribution of their assets.

Equitable distribution

If the parties cannot agree about the division of their property on their own, the parties’ property is divided by a Massachusetts Family Court on an equitable basis. Equitable does not necessarily mean equal. Equitable uses several factors to determine the fair division of assets. These factors include: length of the marriage; conduct of the parties during the marriage; age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities and needs of the parties; opportunity of each for future acquisition of capital assets and income; amount and duration of alimony; present and future needs of dependent children of the marriage; and contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates and the contribution of each of the parties as a homemaker to the family unit.

Types of marital property

Property in a divorce could be any of the following: house(s) and real estate, car(s), furniture, art, jewelry, bank accounts, bonds, boats, policies, plans, pensions, stock options, accounts, coin or collections, wine collections, and more. While Massachusetts considers companion and other animals to be property, judges in Massachusetts may look to see the party who is the primary handler of the animal. There is a growing trend in other states that companion animals will be awarded to a party based upon what is best for the animal. This standard is not yet in Massachusetts, so dogs and cats, and other animals, are considered to be property as well.

There are some other assets that a party in a divorce may be entitled to: stock retirement accounts (401K and pension plans), deferred compensation plans from previous employers, capital losses from previous tax years, cemetery plans or plots, all collections with value, memberships to clubs, gifts, intellectual property such as trademarks, patents, copyrights, and royalty rights, lottery tickets, loans, travel rewards, and more.

If a party owns a business, it is also important to speak with a Massachusetts divorce lawyer about the ways that business ownership may impact the distribution of property in a divorce, especially as business gains are managed and salaries are paid.

To provide an example: Billy and Jean decide to divorce. Billy, a musician, owns an upcoming music label, which he created after is married Jean. Billy also owns the rights to several of his original songs that he recorded on his label. Billy and Jean have a joint bank account that they opened prior to their marriage, but that they regularly used during their 5-year marriage. The couple has a house, no kids, and Jean does not work. They each have a vehicle, but Billy’s car is worth two times more than Jean’s car. What property can be distributed? In Massachusetts, absent a marital agreement, a judge would likely consider the business earnings and future royalty earnings in the divorce decree. The judge would also equitably divide their earnings, the joint account, the value of the house, and their vehicles in an order for the equitable distribution of their property.

No two family law or divorce cases are alike. If you have any questions about divorce, family law, child support, alimony, or more, please contact our firm. You may schedule a free consultation with an experienced family law lawyer today. Call our offices at 978-225-9030 during business hours or complete a contact form online.

 

 

 

Automatic Restraining Order Upon Filing for Divorce

Suppose Jack filed for divorce, and Jill is left confused, unaware of what comes next in the divorce proceedings. Jill is served the divorce papers and realizes that there is an automatic restraining order as part of the summons and complaint. Frantically, she calls a divorce attorney, wondering if a restraining order is all about. Could it mean she cannot have contact with her ex-spouse? Is it possible that she won’t be able to access her financial accounts or her home?

As divorce attorneys, we receive many inquiries regarding the initial paperwork filed in a divorce proceeding. Whether you filed for divorce or are defending a divorce action, you may have heard that Massachusetts Probate and Family Court attaches an automatic restraining order against the defendant spouse at the time of the divorce filing. What is an automatic restraining order; how can you follow it; and what are the sanctions for not following it?

In every Massachusetts divorce case, there is an automatic restraining order. This automatic restraining order is present when the plaintiff-spouse files for divorce, and when the defendant-spouse is served the initial divorce complaint it as part of the Summons. The automatic restraining order is present throughout the entire divorce case, unless modified by agreement of the parties or order of the Court. Upon entry of the divorce judgment or decree, the automatic restraining order is terminated and vacated.

The automatic restraining order, which is codified as Massachusetts Supplemental Probate and Family Court Rule 411, provides for certain restrictions to parties in a divorce. It states the following:

“(1) Neither party shall sell, transfer, encumber, conceal, assign, remove or in any way dispose of any property, real or personal, belonging to or acquired by either party, except: (a) as required for reasonable expenses of living; (b) in the ordinary and usual course of investing; (d) for payment of reasonable attorney’s fees and costs in connection with the action; (e) written agreement of both parties; or (f) by Order of the Court.

Selling your stocks? Giving your children some of your antique jewelry? Hiding your ownership in a partnership or business? All of these could be considered by the Court to fall under the protections of the automatic restraining order, and engaging in these acts despite the order may expose you to sanctions by the Court.

Additionally, Rule 411 prohibits either party from incurring any further debts that would burden the credit of the other party—this includes things like unreasonably using credit cards or bank lines, as well as borrowing against a credit line or the marital residence. Rule 411 also prohibits the spouses from changing the beneficiary of any life insurance policy, pension or retirement plan, or pension or retirement investment account, as well as from causing the other party or the minor children of the marriage to be removed from the coverage.

The goal of an automatic restraining order is to ensure that the parties’ do not make any drastic changes during the divorce proceedings. If one party would do something to give themselves an unfair advantage in the proceedings, or on the other hand, unfairly place the other party at a grave disadvantage, this could greatly impact the outcome of a case.

A question you may have is: what happens if you or your ex-spouse violates the automatic restraining order? Is there a way to make the non-compliant party comply? Are there any repercussions for violating the order?

If either party violates the automatic restraining order provision of Probate Court’s Rule 411, the other party can either file a formal complaint for contempt with the Court. A complaint for contempt arises when a party does not agree with a court order. It is a judge’s decision as to whether or not the party has violated the automatic restraining order. If so, the party will be held in contempt of court, and the judge will impose sanctions based on the severity of the violation. Sanctions are court-ordered penalties for disobeying a law or rule—in this case, they may range from fines to unfavorable rulings on certain motions.

If you need assistance with an automatic restraining order or have any questions about divorce or family law issues, contact our experienced family law attorneys. Call 978-225-9030 during regular business hours or complete our online contact form, and we will respond to your phone call or submission promptly.

The Respective Estates of the Parties: a Factor in Alimony

Suppose Grace and Will own a home and have pension plans. Now that they are divorcing, they want to know how a court would impose alimony payments. How do the respective estates of the parties factor into the court’s decision regarding alimony?

Alimony is court-ordered support from one spouse to another.[1] In 2011, Massachusetts adopted the Alimony Reform Act. The Act, which took effect in March, 2012, governs the type, the amount, the duration, and the termination of alimony payments. In Massachusetts, there are four types of alimony[2]: (1) General Term alimony (provides regular support for a length of time based on the length of the marriage); (2) Rehabilitative alimony (provides regular support until the ex-spouse is able to be self-sustaining); (3) Reimbursement alimony (provides regular or one-time support for a shorter marriage to make up for costs that the ex-spouse paid in supporting the other spouse); and (4) Transitional alimony (provides regular or one-time support).

In Massachusetts, assets are divided on an equitable basis.[3] A judge’s decision as to what is equitable will not be reversed unless “plainly wrong and excessive.”[4] A court may assign all or any part of the estate of the other, including, but not limited to, retirement benefits, military retirement benefits, pension, profit-sharing, annuity, deferred compensation, and insurance.[5] The definition of estate is broadly defined.[6] As such, Massachusetts courts allow the division of premarital property and post-marital property on a case-by-case basis.[7]

A judge will review the following factors when deciding whether or not to award alimony or for how much the alimony award should be assigned: the length of the marriage; age of the parties; health of the parties; income, employment and employability of both parties, including employability through reasonable diligence and additional training, if necessary; economic and non-economic contribution of both parties to the marriage; marital lifestyle; ability of each party to maintain the marital lifestyle; lost economic opportunity as a result of the marriage, and other factors the court considers relevant and material, including the estates of the parties.[8]

For Grace and Will, a court will evaluate their estates and income levels, as well as the type of alimony that should be awarded (and if any should be awarded). If a judge determines that an alimony award is necessary, the court will factor the estates of the parties in the award on an equitable basis. Courts will also look to determine whether either of the parties wasted marital assets and will make an award based on equitable, not solely “equal” factors.

If you need more information about the Massachusetts alimony law or about family law generally, you may schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete a contact form, and our competent family law lawyers will respond to your phone call or submission promptly.

 

 

[1] Mass. Gen. Laws ch. 208 § 48

[2] Id.

[3] Adams v. Adams, 459 Mass. 361, 371 (2011) (citing to Bowring v. Reid, 399 Mass. 265, 267 (1987))

[4] Adams, 459 Mass. at 371 (citing to Redding v. Redding, 398 Mass. 102, 108 (1986))

[5] M.G.L. c. 208 § 34

[6] Rice v. Rice, 372 Mass. 398, 400 (1977) (holding that an estate is all property to which the party holds title, however acquired.)

[7] Moriarty v. Stone, 41 Mass. App. Ct. 151, 156 (1996) ; Brower v. Brower, 61 Mass. App. Ct. 216, 218 (2004)

[8] Alimony Award Process, https://www.mass.gov/service-details/how-the-court-decides-if-alimony-will-be-awarded-alimony; Mass. Gen. Laws ch. 208 § 34

Valuing Partnerships and Professional Practices in a Divorce

How is a share in a partnership valued in a divorce? How are professional practices valued in a divorce?

People facing a divorce are often concerned about their financial futures. One such financial concern regards how shares in a partnership are valued in a divorce. Parties may also wonder how professional practices are valued in a divorce.

Say, for example, that Taylor and Alex have shares in a financial management business. Also, Taylor owns a medical practice. Now that they are divorcing, Taylor and Alex want to know how their assets will be divided, and specifically, how the shares in the financial management business and the medical practice will be divided.

In Massachusetts, assets are divided on an equitable basis.[1] A judge’s decision as to what is equitable will not be reversed unless “plainly wrong and excessive.”[2] A court may assign all or any part of the estate of the other, including, but not limited to, retirement benefits, military retirement benefits, pension, profit-sharing, annuity, deferred compensation, and insurance.[3] The definition of estate is broadly defined, however.[4] In fact, Massachusetts courts allow the division of premarital property and post-marital property on a case-by-case basis.[5] With regard to the division of shares in a partnership, courts will generally interpret G.L. c. 208 § 34 to include partnership assets within the scope of the possible assets that may be divided in a divorce.

Shares of a partnership and business practice interests are part of the marital estate and may be valued by a valuation expert to assess the market value of the asset. A professional practice, like a medical practice, is considered in Massachusetts to be subject to division during the divorce process.[6] Massachusetts courts may order one of the parties in a divorce to relinquish their share of ownership in the business and receive payment either as a lump sum or in a series of installment payments. A court may order that the business be sold and the spouse receives the profits. One spouse could buy-out the business from the other spouse or offset the business with other assets.

During the valuation process, there are generally three valuation methods: the market approach (estimates business value by comparing the business to a similar business that is recently sold); the income approach (estimates business value by converting economic benefits into a value); and the asset approach (estimates business value based on the assets and liabilities of the business).

In the above example, Taylor and Alex have several possible options afforded to them. A Massachusetts Probate and Family Court will divide the estate equitability based upon the parties’ needs and what is most equitable based on their individual case.

Want to speak with a divorce lawyer about your case? Schedule a free consultation with our office and you’ll learn how the law applies to your facts and circumstances. Call 978-225-9030 during regular business hours or complete our contact form online, and we will get back to you at our earliest opportunity.

[1] Adams v. Adams, 459 Mass. 361, 371 (2011) (citing to Bowring v. Reid, 399 Mass. 265, 267 (1987))

[2] Adams, 459 Mass. at 371 (citing to Redding v. Redding, 398 Mass. 102, 108 (1986))

[3] M.G.L. c. 208 § 34

[4] Rice v. Rice, 372 Mass. 398, 400 (1977) (holding that an estate is all property to which the party holds title, however acquired.)

[5] Moriarty v. Stone, 41 Mass. App. Ct. 151, 156 (1996) ; Brower v. Brower, 61 Mass. App. Ct. 216, 218 (2004)

[6] Goldman v. Goldman, 28 Mass. App. Ct. 603, 613 (1990).