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.

A Part-time Job and Its Effect on Alimony or Child Support

In what ways might a part-time job or second job affect alimony or child support payments?

Under Massachusetts divorce law, a spousal support award is not set in stone. Rather, it may be altered by a petition for modification to the court initiated by either party. To prevail, the petitioner must demonstrate that an adjustment of the alimony judgment is warranted because of a material change of circumstances since the earlier judgment was entered.

Likewise, a court may modify an earlier judgment regarding the care and custody of minor children if it determines a material and substantial change in the parties’ circumstances has occurred requiring an adjustment that would be in the children’s best interests. As noted in Section III. (A.) of the 2017 Massachusetts Child Support Guidelines, among the occurrences that justify modifying a child support order are:

  • An inconsistency between the amount of the existing order and the amount that would result from the application of the guidelines;
  • previously ordered health care coverage is no longer available;
  • previously ordered health care coverage is still available but no longer at a reasonable cost or without an undue hardship; and
  • access to health care coverage not previously available to a parent has become available.

Concerning both alimony and child support, a common basis for complaints for modification brought by one party involves the other party either taking on a second job to supplement his or her main income or accepting a part-time position.

In ordering one of the parties in a divorce to pay alimony to the other in the first instance, the court weighs numerous factors, including the length of the marriage, the parties’ age and health, their employability and the sources and amounts of income. To arrive at the parties’ incomes concerning an alimony award, a judge may attribute income to a party who is unemployed or underemployed.

In a spousal support modification action, any income earned by the party paying alimony from a part-time job, second job or through overtime is presumed not to be material to a redetermination of alimony, so long as the party is working more than a “single full-time equivalent position,” and the second job or overtime pay began after the initial spousal support award was entered.

In one case, the former wife appealed her court-ordered rehabilitative alimony payments to her ex-husband. The Appeals Court found the probate court judge had not abused his discretion in making the award, but had erred in determining her ability to pay the amount of spousal support by considering her income both from her full-time position and a part-time job she took on after the judgment of divorce had entered. The appellate court vacated the alimony award and remanded the case to the trial judge. The court held that a party working full-time cannot be considered “underemployed” based on the pay level from a post-judgment second job unless a judge finds supporting evidence that “a basis exists for rebutting the presumption of immateriality applicable to the income earned from the second job.”

The 2017 Massachusetts Child Support Guidelines allow a court considering the best interests of the children to weigh “none, some, or all overtime income or income from a secondary job” from the calculation of gross income for child support purposes. A presumption exists that any part-time job, overtime pay or second-job income not be considered in a future child support order if the payor or recipient parent began receiving such income after the initial child support order was entered.

If you have any questions about alimony, child support, or any other issues regarding family law, 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. Do not hesitate to call our offices today.

Modification of Alimony Payments

Kelly and Alex were granted a divorce. The judge also entered a judgment for alimony payments, so that Kelly was ordered to pay Alex $800 per month, along with providing health insurance for Alex.

Kelly has not complied with the health insurance requirement, although she has paid the required monthly alimony amount. Kelly was recently laid off from her well-paying position and now makes about two-thirds of her previous salary. What are Kelly’s options for modifying her alimony payments, especially given that she hasn’t complied with part of the original order?

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).

A judge may decide to change a general term alimony payment if there is a “material change of circumstances warranting modification.”[3] The modification may be permanent, indefinite, or for a finite duration.[4] In addition to needing a “material change of circumstances” Massachusetts Judges also require “clear and convincing evidence” of an extension of an existing alimony order.[5] Massachusetts courts will not order a modification of reimbursement alimony.[6] Additionally, courts will not modify or extend transitional alimony.[7] Depending upon the grounds for doing so, Massachusetts courts may deviate from the duration and amount limits for general term alimony and rehabilitative alimony.[8]

With regard to Kelly, it is important that she speak with her competent alimony law attorney, so that she can request that a modification be made to her alimony order. If she has an order for general term alimony, a judge may enter a modification, so long as she has a “material change in circumstances.” Kelly should not elect to change her payments without a judge’s permission, or else face issues with contempt. It is possible that Kelly will be forced to make additional payments to make up for the health insurance provisions that she owes to Alex.

If you have any questions about issues of divorce, alimony, or property division, you may schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete a contact form here, and we will get back to you at our earliest opportunity.

 

 

[1] Mass. Gen. Laws ch. 208 § 48

[2] Id.

[3] Mass. Gen. Laws. ch. 208 § 49(e)

[4] Id.

[5] Mass. Gen. Laws. ch. 208 § 49(f)(2)

[6] Mass. Gen. Laws. ch. 208 § 51(b)

[7] Mass. Gen. Laws. ch. 208 § 51(b)

[8] Mass. Gen. Laws. ch. 208 § 53

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).

Future Income and Property Acquisition in Dividing Marital Property

Zelda and Zack have been married for ten years and are undergoing a divorce. Zack recently found out two things: first, that Zelda has won a professional award which will likely allow her to increase her income substantially in the future; and second, that Zelda is likely to come into a large inheritance from her mother, of which Zack had no idea. Zack wants to know if the Massachusetts Family Law Court is likely to take these two things into consideration when dividing the marital property and ordering alimony.

The Massachusetts Probate and Family Courts use a process called equitable distribution to divide marital property in general. Here, the term “equitable” means “fair,” and not necessarily equal: the court will determine how to best divide marital property in the fairest manner in each particular case. There are many factors that the Court considers as part of this process. Massachusetts General Laws, chapter 208, section 34 defines the factors the Court will use in determining how marital property should be divided. Under the statute, the Court may include in its analysis the opportunity for the parties to acquire future income and property.

The opportunity to acquire future income and property is a comprehensive factor: it includes the likelihood of earning future salaries, bonuses, royalties, and other sources of income. It also includes family trusts, inheritances, and other property which may befall one of the parties in the future.

In one Massachusetts case, the Court considered the effect of the husband’s Nobel prize on his future acquisition of assets. As the Appeals Court explained upon appeal:

In explaining her division of assets, the judge relied “heavily” upon the statutory factor of the “ability of the parties to acquire future income and assets.” The judge concluded that the husband’s ability is excellent, as he retains a retirement asset in which his employer “matches his future contributions dollar for dollar,” and his “receipt of the Nobel prize opens wide new horizons for his income potential.” The wife’s future prospects were found to be “paltry and stagnant by comparison.” The judge found that the wife had “no likelihood of acquiring significant future assets or increasing her earned income.”

The Appeals Court affirmed, holding that the trial court properly considered the above factors in computing the parties’ opportunity to acquire future income. “The husband’s and wife’s ability to acquire future income and assets are therefore strikingly different and justify the judge’s heavy reliance on this factor,” the Court noted.

In the case of future property acquisition, however, the Court will carefully consider whether there is a realistic prospect of receiving the future income or property, or whether future acquisition is merely expected. If it’s the latter, the Court may not include it in its consideration of assets. In one case, the courts considered a husband’s future interests in many different family trusts and other property. In some trusts, the husband was deemed to have a present, enforceable right, and those trusts were ordered by the court to be considered as opportunity for future acquisition of capital assets and income in determining alimony and child support. In some other trusts, however, the husband’s interest was deemed too remote or speculative, and those trusts were not considered to be part of the marital estate.

If you have any questions about issues of divorce, custody, or support, you may schedule a free consultation with our office. 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.