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.
Peter and Petra are getting married. Peter has considerable assets, including several homes, vacation homes, and checking and savings accounts. He also owns a string of rental properties from which he receives income. He deposits the rental income into an account which is not under his name, but rather the name of a trust he created. Petra, conversely, does not have much by way of assets, save for a modest savings account.
Peter and Petra have agreed to draft and sign a prenuptial agreement. Their respective attorneys have informed them that they would need to fully disclose their assets to the other party—in other words, they would need to inform each other about anything and everything of value they own. Peter has asked his attorney whether he needs to tell Petra about the rental income. After all, it is held in trust; what if Peter chose not to disclose it?
Prenuptial Agreements, Generally
An antenuptial agreement, also called a prenuptial agreement, is a written contract between two people who are about to be married. It serves to set out the terms regarding the division of property in the event of a divorce, along with any provisions for alimony.
Generally, in order for a prenuptial agreement to be considered valid and enforceable in Massachusetts, the agreement must meet the following elements:
- it must be in writing;
- signed by the parties;
- signed voluntarily and under no signs of duress or fraud;
- made after full disclosure of the parties’ assets;
- the agreement must be fair and reasonable, and enforcement must not be against countervailing equities;
- the parties must have adequate opportunity to consult with independent counsel;
- the parties must understand and clearly indicate the rights which they are contracting away; and
- the parties must not relieve themselves of their legal obligations during the marriage through the agreement.
Full Disclosure of Assets
In the above scenario between Peter and Petra, the element of full disclosure is at issue. To ensure that the process of signing the antenuptial agreement is fair and equitable to both parties, the court requires a full financial disclosure of the parties’ assets. In essence, the parties will be viewed to have a confidential relationship which brings with it the duty to disclose, mutually attributed to each party.
Lack of full disclosure may result in the parties’ agreement being invalidated. In some cases, lack of disclosure amounts to a form of fraud, particularly where there is a demonstrable inequity between the parties’ assets. Looking at the above example, this is the case, as Peter clearly possesses more assets than Petra.
In one case, the Massachusetts appeals court invalidated a prenuptial agreement after finding a lack of full disclosure on the husband’s part. Schechter v. Schechter, 88 Mass. App. Ct. 239 (2015). In that case, the husband kept the wife in the dark regarding his financial assets. He also claimed during the divorce proceedings that his primary asset, his real estate company, was a partnership. He claimed that his parents owned a one-half interest in the company. Moreover, the husband then attempted to make a fifty-percent, retroactive distribution of the real estate company’s assets to his parents during the divorce proceedings.
Financial Disclosure Schedules
In order to avoid any potential questions down the line, full disclosure should take place in writing. Each party should, for best practices, draft a financial disclosure schedule, which will be attached to the prenuptial agreement as an addendum. This schedule should clearly delineate and disclose all of the party’s assets to the other party. It should include:
- a listing of the party’s assets, along with the value of each asset;
- any outstanding liabilities of the party;
- the sources and amounts of the party’s income;
- any interests in businesses, partnerships, etc.; and
- any expectations of inheritances or other potential assets.
Moreover, the agreement should include a section which makes it clear that both parties have read each other’s financial disclosure schedules, understand it, have acknowledged reading it, and have had the opportunity to consult with an attorney regarding it.
If you need assistance with a prenuptial agreement or have any questions about divorce or family law issues, 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.
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. A judge’s decision as to what is equitable will not be reversed unless “plainly wrong and excessive.” 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. The definition of estate is broadly defined, however. In fact, Massachusetts courts allow the division of premarital property and post-marital property on a case-by-case basis. 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. 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.
 Adams v. Adams, 459 Mass. 361, 371 (2011) (citing to Bowring v. Reid, 399 Mass. 265, 267 (1987))
 Adams, 459 Mass. at 371 (citing to Redding v. Redding, 398 Mass. 102, 108 (1986))
 M.G.L. c. 208 § 34
 Rice v. Rice, 372 Mass. 398, 400 (1977) (holding that an estate is all property to which the party holds title, however acquired.)
 Moriarty v. Stone, 41 Mass. App. Ct. 151, 156 (1996) ; Brower v. Brower, 61 Mass. App. Ct. 216, 218 (2004)
 Goldman v. Goldman, 28 Mass. App. Ct. 603, 613 (1990).
During the divorce process, most parties want to ensure that the end of the marriage won’t result in the end of their preferred lifestyle. How are automobiles treated during property division? How are other personal items of value, such as jewelry and antiques valued in a divorce?
Say, for example, that Alex and Jamie were married for twenty years and have filed for divorce. They appreciate their belongings and want to know how their material items will be divided. Alex is a collector of antiques and also owns two expensive automobiles. Jamie drives the family van and also owns jewelry. Because they cannot agree on the division of their property, they want to know how the antiques, vehicles, and jewelry will be divided by a Massachusetts family court during the divorce process.
If the parties in a divorce agree to their own division of property, the courts in Massachusetts will usually support the fair and reasonable distribution of their agreement related to the property division. However, if the parties cannot agree, Massachusetts courts will make the determination as to how assets should be divided. This division is known as an “equitable division.” Equitable does not necessarily mean that each party is entitled to “equal” or 50/50 division of assets. Instead, the courts will use several factors to determine the fair division of assets. Although the list is not exhaustive, courts determine what is fair by examining the following factors:
- 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.
If one former spouse believes that she is entitled to more property than a judge initially awarded, another judge may order that without a clear and adequate explanation for the amount of property awarded between the parties, the division of property may not be equitable.
If they cannot agree, Alex and Jamie would experience the Massachusetts court-imposed “equitable division” standard. Their twenty years married, their conduct during the marriage, and the personal items and property shared between them, including the antiques, cars, and jewelry, would be evaluated and divided.
The value of the personal items is dependent on the circumstances which arrant division of property in recognition of the marital partnership concept [. . .] Therefore, Alex’s and Jamie’s tangible property could be valued at a fair market value rate, which means that the amount that the property would sell within an open market. If the amount of an item cannot be determined, a judge could look to professional appraisals, receipts, and other material documentation to reach the property monetary amount.
If you have any questions about the divorce process or assignment of property, 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.
 Mass. Gen. Laws ch. 208 § 34
 Bowring v. Reid, 399 Mass. 265, 268 (1987) (remanding a decision so that a judge may articulate the rationale for the Section 34 alimony and property awards, especially because the plaintiff alleges that the defendant was unfaithful and abusive and the plaintiff’s contribution to the marriage, her needs, and her sources of income were not considered.); See, Redding v. Redding, 398 Mass. 102 (1986).
 Davidson v. Davidson, 19 Mass.App.Ct. 364, 370 (1985) (citing to Inker, Walsh & Perocchi, Alimony and Assignment of Property: The New Statutory Scheme in Massachusetts, 10 Suffolk U.L.Rev. 1, 8 (1975))
May the calculations for alimony payments include a spouse’s unvested stock options, particularly if those options were not considered to be part of marital property for purposes of equitable distribution? This question was recently answered by the Massachusetts Supreme Judicial Court. In Ludwig v. Lamee-Ludwig, the Court said yes. 
At issue was a practice colloquially known as “double-dipping,” which brings up “the seeming injustice that occurs when property is awarded to one spouse in an equitable distribution of marital assets and is then also considered as a source of income for purposes of imposing support obligations.”  As an example, double-dipping would occur where a party’s unvested stock options were divided equitably during the divorce, and later, when vested, counted as the party’s income for purposes of calculating alimony payments.
In the case at hand, the parties were divorced in 2014. Under their separation agreement, the wife was awarded alimony based on a portion of the husband’s annual base salary, and also awarded additional alimony based on a sliding-scale calculation of the husband’s bonuses and other forms of compensation. The trial court applied “the time rule” to this case: this rule considers the number of unvested options, as well as the length of time the employee spouse has owned those options PRIOR to the dissolution of the marriage.
The Court noted that because the trial judge did not consider the unvested stock options as part of the marital property to be divided among the parties during the divorce, no double-dipping occurred. “Here, there is no such injustice because the contested shares were not part of the equitable distribution of assets; by operation of the time rule, they were assigned to and retained by the husband outright.”  The source of property assignment only included options which were attributable to the marital partnership, and did not include stock options which were given for post-marital efforts. Therefore, the Court noted, those unvested options could be considered income for alimony calculation purposes.
Interestingly, the Court also pointed out that the practice of double-dipping is not prohibited as a matter of law—it may be done, so long as the trial judge considers the equities of each situation.
 Ludwig v. Lamee-Ludwig, No. 15-P-1177 (October 17, 2016-February 7, 2017).
 Id., at 5, quoting Champion v. Champion, 54 Mass. App. Ct. 215, 219 (2002).
 Id., at 5.
This question was recently answered by the Massachusetts Supreme judicial Court in Pfannenstiehl v. Pfannenstiehl, decided in August 2016. This case is extremely helpful for divorce practitioners dealing with trusts because the court explains the application of the law to a variety of trust concepts, such as spend thrift provisions, irrevocable trusts, ascertainable standards, all of which may be making your head hurt as you read this sentence.
Ultimately, the court concluded that whether a trust should be distributed as “marital property” depends on whether the trust benefit is speculative or alternatively whether it’s sufficiently certain. We will dive deeper into this analysis but essentially, the specific language of a trust must be analyzed to determine whether a spouse’s benefit due to one of the spouses should be considered part of the marital estate. Generally, if the benefit is so speculative that it is difficult (or impossible) to determine whether the spouse will actually get it sometime in the future, it probably will not be considered part of the marital estate. If, however, the benefit can be determined by some sort of ascertainable standard, then it more likely will be part of the marital estate and divided through equitable distribution.
This particular case was pretty fascinating because the husband and wife, without the existence of the trust, live a not uncommon upper-middle class lifestyle. The husband works for a family business, making about $190,000 a year. The wife worked part time as an ultrasound technician earning about $20,000 a year. She additionally received a few thousand dollars a year in rental income that was solely in her name. The parties have two children, one of whom has down syndrome, and so the wife seems to have tended more to the children. While they made a good living, the lifestyle they lived was significantly higher because of the husbands benefit from a family trust.
In 2000 for a trust was established by The husband’s father, funded by the father’s businesses, life insurance policies, and a cash account. The trust was irrevocable, meaning that the husband’s father wasn’t unable to dissolve it and take his money back. The beneficiaries of the trust were a class of people, of which the father was one of 11. Basically, the class was made up of all the husband’s father’s descendants. There were two co-trustees Who essentially had complete discretion on distributions. There was also a spend thrift provision which protected the beneficiaries from their creditors standing between them and their benefit.
In this particular case, the SJC found that the husband’s interest was too speculative to be included in the marital estate. That is pretty significant because the trial court had valued the husbands interest at over $2.2 million. The court found that because it was within the sole discretion of the trustees to distribute funds to the husband, it was speculative as to whether he would receive anything further in the future. That speculative nature didn’t, notably, mean that the court could not consider the trust interest in the equitable distribution, only that the court could not distribute that interest as part of the marital estate. The court also notably found that, although it had dispensed with an award of alimony, the court could reconsider that issue and potentially award alimony considering that trust interest would not be distributed as part of the marital estate.
So what does this all mean in plain terms? It means that if a trust benefit, like income from from a trust, can be determined and defined, it can generally be distributed as marital property. If it’s unclear whether the spouse will receive a trust benefit in the future, it would be too speculative to be part of the marital estate. In that situation, the court can still properly consider the interest, including the likelihood of a party receiving it in the future, when the court distributes the rest of the estate. The likely result is that, where it seems likely a party would get a sizable benefit in the future, although it may be speculative, the court would be more prone to giving the other spouse more of the marital estate. Same deal with alimony. Although a trust interest may be too speculative to give to either party, the court can consider the likelihood of the expected income in awarding alimony. So in this case, I’d imagine the trial court, when they get the case back to figure it out, will give more than half of the remaining marital estate to the wife to account for the likely benefit the husband will receive from the trust.
This case did a very good job of illustrating the vast discretion of the court, while defining the boundaries of the marital estate. Really, the overall finances of the family are always to be considered by the court. While the court can’t distribute something that is too speculative, the court can do other things to balance the speculative nature of an interest and whether one spouse will likely receive it. There were many lessons from this case and we will continue to discuss it on this blog.
Once again the complexity in family law cases is illustrated by the Supreme Judicial Court. And when financial issues become complex, having a great divorce lawyer becomes essential. If you have trust interests at issue in your case, consider scheduling a free consultation with our team of divorce attorneys. Schedule yours today by calling 978-225-9030 during regular business hours, or complete this contact form and we will contact you back at our earliest opportunity.