A Business Owner’s Divorce: The Impact

I am under the opinion, after practicing divorce law in Southern California for over 42 years, it is almost impossible to separate your business life from your personal life. I, too, run a multi-million dollar operation. I am responsible for meeting payroll and living up to my commitments to the judiciary, clients, vendors, and governmental authorities. A business owner’s responsibility does not stop at 5:00 pm; rather it is a 24-hour-a-day job. This article seeks to address how a divorce impacts a business owner.You Are Served
It all starts with the business owner being served with a Petition for divorce. As we all know, this usually means a sheriff with a badge arrives at your office and possibly startles the receptionist at the front desk. It seems, within seconds, the entire business knows you have been served with divorce papers. You may feel mixed emotions: embarrassment, complete anxiety, and possibly apprehension.Could you imagine the look on your face when making a presentation to key staff members in the board room and your receptionist interrupts to inform you there is a sheriff, with documents, requesting to meet you? This could actually take the wind out of your presentation.After you recover from this transgression you may nervously get on the Internet or call a trusted friend. After which, you need to make the necessary preliminary arrangements on how to respond to the divorce documents served upon you.Strategic Consultation
It is absolutely critical you meet with an experienced divorce attorney. An experienced divorce attorney can provide valuable guidance at the onset of your divorce. Calming your fears is important. Make sure you select a practice limited to family law and a divorce attorney with years of experience. This is not a moment in your life to have a generalist talk about what might happen in your divorce. Keep in mind, the divorce process of Los Angeles County in 2010 is perhaps the most challenging environment you could find yourself thursted in to.There are thousands of cases and thousands of statutes that can be cited in your case. The California rules of Court and the Evidence Code also factor in divorce proceedings. Experts can be called upon by either side to provide credentialed and specific testimonies, verbal or written, to assert either spouse’s best interests or to discredit the other spouse’s assertions.There are different County rules. For example, (Los Angeles County rules differ from those of Orange County). There are different local district rules. Santa Monica Court has a completely different set of rules from Downtown Court. Judicial officers can look at the same set of documents and hear the same arguments and rule differently. There are judges who are elected and there are commissioners who are appointed.Attorneys are different as well. Single practitioners may not have the operational capacity to handle complex and sophisticated transactional or custodial divorce cases. They can be overloaded by bigger firms requesting document after document or filing hearings after hearings. Older attorneys perhaps are more experienced than younger attorneys. Real estate and business experienced divorce attorneys are different from custody attorneys. Some attorneys have abilities in both types of cases (financial vs custody).Employees
We make our living with these great people. However, they may be affected by our personal lives. A business owner is responsible for the culture, tone, and integrity the business attempts to manifest. If an employee senses that a business owner is acting out of integrity in their divorce, they may assume they are acting in the same fashion in the working environment.The divorce process allows either party to subpoena and request documentation from the business directly. If appropriate, even the employees may be subpoenaed for a deposition to glean valuable financial and transactional information for the benefit of the spouse activating the subpoena. The divorce process can certainly be disruptive and disruption can lead to uncertainty in a business operation.The business owner going through a divorce decision-making process is sometimes strained and challenged. This additional stress can lead to business inertia. Inertia can affect business income which can then affect payroll. Sometimes, as a result of a business owner’s divorce, employees are laid off, salaries are cut, or 401(k) matching plans are placed on hold if not entirely terminated.Also, at the end of the divorce process, there may be a change in ownership or in fact a sale of the business. This absolutely affects all stake holders especially employees.The Home Front
One must be extremely careful to behave in a civil and dignified caring manner throughout divorce proceedings. This means behaving in a mature, reasonable fashion if you are still living with your spouse. Believe it or not, a lot of people that are going through a divorce continue to live together. When children are involved, even if the tone in the family residence is tarnished, you have a responsibility to act completely civil and mature, especially in front of your children. Any inappropriate behavior is not taken lightly by judicial officers. Children must not be exposed to our adult indiscretions. You should never discuss divorce proceedings with your children.Maintaining your civility at home and during your interactions with your spouse is absolutely necessary. What you do not want to do is inflame the situation whereby you threaten or assault, by any fashion, your spouse. You do not want to have an additional domestic violence case within your divorce case.Keep in mind temporary restraining orders are available to protect individuals. Either spouse can request this order when necessary to protect themselves or their children. There is no excuse for domestic abuse.If you do find yourself in a domestic violence situation, act responsibly and do whatever it takes to immediately reduce the situation; walk away and de-stress. Any arguments or disagreements should be resolved through your attorneys. Being kind and considerate to your spouse is invaluable.Child Custody
Nothing is more taxing on a business owner’s ability to focus on the business than the custody of the children involved. A divorce may contain sensitive custodial issues. These issues may necessitate the assistance of child custody evaluations, minor’s counsel (attorney for children), or child custody monitors.Temporary custody and visitation issues are challenging as well. Who will have the kids? Who will pick up or drop off the kids? New custody arrangements present challenging logistics that may confront your time management skills. Equally important to the counsel of an experienced attorney is how the attorney can communicate to the judge your ability to maintain the custody you are entitled.Financials
This is where the tire meets the road. Financials are at the core of every business. Immediately a sophisticated divorce attorney on either side should have a preliminary understanding of both the personal and business financial situation of the individual being represented.A divorce attorney experienced in complex divorce procedure can recommend the necessary professional for your divorce. One such professional is a forensic divorce accountant. The two most important reasons to engage a forensic divorce accountant is extracting business valuation and to determine what personal expenses are paid by the business, otherwise know as “perquisites”.For example, if a high-earning business owner is going through a divorce, it must be immediately determined how to truthfully represent the financials to the family law court. While a forensic divorce accountant is invaluable, a business owner must maintain complete control of the process. Again, selecting talented and experienced professionals to assist you in your divorce is critical.In the beginning of the divorce process, the financial disclosures are presented in the Income and Expense Declaration and Schedule of Assets and Debts forms. A business owner’s personal and professional life will greatly benefit from prompt preparation, reviews, and understanding of these forms. This is a significant step in the beginning of a business owner’s divorce. These financial forms are referred to as “preliminary disclosures”.Sometimes complex divorces take time to resolve, even taking a few years. If this is the case, at the end of the divorce, these same financial disclosures are referred to as “final disclosures”. Any material financial changes must be reflected accurately. Insisting that my clients are truthful, organized, and pro-active is sensible for business. Keep in mind, when going through a divorce, the family law court is a court of equity. According to California community law, unless otherwise agreed to, most earnings and assets and debts must be equally divided between spouses. This is the cornerstone of the family law court.Also keep in mind, all assets are presumed community. If a family residence or business was acquired or started prior to the parties’ date of marriage there may be significant separate versus communal issues and valuations that must be clarified. Another aspect that requires substantial analysis is support. Support may be for child support or spousal support (alimony). You do not want to be wrong in the process or representations.Attorney’s Fees
Keep in mind, that temporary support calculations and analysis is different from permanent support. In other words, typically final support amounts are somewhat lower than temporary support. Last but not least, financial disclosures and their representations or documentary substantiation are indispensable when it comes to attorney’s fees.Although, there are many reasons for ascertaining attorney fees, two reasons take the highest priority for a business owner: the need and ability, and compliance and cooperation. One spouse may have the need yet the other may have the ability to pay for attorney’s fee. Regarding compliance and cooperation, the divorce court frowns upon a spouse who is not complying or cooperating during the divorce process. A typical disciplinary measure employed by judicial officers is the charging of attorney fees to either spouse who engages in non-compliance or who is not cooperating.Business Operations
Throughout a pending divorce process, the opposing party or their attorneys can launch a barrage of subpoenas demanding all sorts of financial information from the business. The employees, vendors, associates, and even customers, can be subject to such demands for production of financial information. Additionally, all these entities, including the business owner, are subject to a deposition.If subpoenaed, they may be required to appear at an attorney’s office, bring documents, and be put under examination, under penalty of perjury, with a court reporter taking a legal transcription of the proceeding. It is actually an extension of the family law court procedure. If appropriate and permitted, the business owner’s employees, vendors, customers and associates can actually be connected to the divorce case and be subject to the divorce judge’s authority and orders.Business owners, employees, vendors, and customers can find the divorce process disruptive if not managed properly. Business accounts, if permitted, can be frozen pending further order of the court, producing poor business.While a spouse has the right to request extensive documents and information, handling these demands expends valuable business resources and may become extremely expensive.As a business owner, you may find yourself allocating a significant amount of time to your divorce, to the detriment of your business. You may be called away for court hearings, depositions, accounting meetings or attorney meetings. Additionally, a court may thrust itself into a business if deemed appropriate. This includes perhaps placing a receiver (court appointed accountant) in the middle of operations. Typically, receivers can approve or disapprove key financial transaction. Naturally, having another individual in the driver’s seat of the business can and will wreak havoc on operations.Finally, since the divorce process is public record, all information divulged, as in some recent high profile court cases, can lead to a public relations disaster. For this and the reasons reflected above, one must seek experienced and knowledgeable counsel during this challenging time in a business owner’s life.P.S. Multiply what was discussed above by a factor of 10 if your business is a well-known company.by J.Michael Kelly Esq.

How to Build a Sustainable, Durable, Scalable and More Profitable Business

Businesses are born and businesses die every day. Unfortunately, the death rate is increasing and now exceeds the birth rate. This has obviously been caused by the change in the economy. Unfortunately, with small businesses being so vital to the economy, it is also a cause for the continued recession! It’s a vicious cycle, but one that can be stopped…In The E-Myth Revisited (Michael Gerber) published in 1995, Michael Gerber reported that 80% of businesses fail in the first 5 years of trading, and that 80% of those that survive the first five years don’t make it past their 10th birthday. Meaning only 4% of new businesses will celebrate their 10th anniversary.The Office of National Statistics in the UK publish statistics on the “births and deaths” of UK businesses every year. The key statistics from this report are:
The number of business closing their doors rose by 20,000 (7.4 per cent) to 297,000 for the year between 2009 and 2010
The number of businesses started remained broadly flat with a small decrease of 1,000 (0.4 per cent)
For the second consecutive year businesses that stopped trading outnumbered those that started resulting in a 1.8% drop in the number of active businesses
The data also provides information on the survival rates of businesses.From this we can see that around 40% of all businesses started in 2005 were still trading in 2010. Somewhat higher than the 20% suggested in the E-Myth.While there is no data for 10 year survival, modelling the data you can predict that 17% of businesses started in 2005 should see their 10th birthday.However, the numbers also suggest a decline in survival rates since 2008 as you might expect given the economic conditions. As a result, the average life expectancy for a new business has dropped from 5 years for businesses opened in 2005 to a predicted 4 years for businesses started in 2010.This is considerably better than the 3 years suggested by the survival rates quoted in the E-Myth. This may mean that things overall are better than they were in 1995. Or it may mean that businesses are more durable in the UK than they have ever been in the US. Or both…Regardless, if the aim of business is to generate long-term profitable enterprise for individuals and their employees, then the absolute numbers don’t matter too much. Most business owners don’t start a business expecting it to be there for only four to five years on average.What to do about it?While the economy is accelerating the closure of businesses, one of the main underlying causes for the majority of business failures is that most business owners never manage to build a fully systematised business.Research shows that while the majority of business owners know they need to systematise their business, almost 99% of business owners have been unable to do so. It isn’t their fault. No one has ever shown them how to do it.The business remains for the most part in the head of the owner and so the business cannot function without them. Over time this grinds the owner down until they’ve had enough and close their doors, never realising the dreams they had when they opened for business in the first place. Even worse, without business systems in place, it cannot adapt in a declining economy.Writing systems isn’t difficult and yet most businesses don’t achieve it. There are many reasons. It doesn’t seem like profitable work so isn’t a priority… It isn’t very exciting/interesting work… It isn’t something the owner is good at… there are too many distractions from customers, employees, suppliers, etc.And yet when it is achieved it can and does result in sustainable, durable, scalable and more profitable businesses. So it must be worthwhile putting time aside to start.

Residential Construction Issues in Connecticut

Are you in this midst of a construction project or just thinking about one? Is your contractor licensed? Does the construction contract contain all of the information required by Connecticut state law? With all of the construction going on in Fairfield County, it is important for you to review these issues to make sure that you, the homeowner, are protected in the event your project turns sour.In Connecticut, both new home builders and home improvement contractors must be licensed. There are separate and distinct licenses for each and both are licensed by the Department of Consumer Protection (“DCP”). Holding either license, however, does not mean that the builder/contractor has done anything more than fill out the proper paperwork and pay the required fees. The license is not an endorsement by the DCP that the builder or contractor does good work or maintains appropriate insurance. According to the DCP, the definition of a “Home Improvement” is “any permanent change to residential property, including but not limited to driveways, swimming pools, porches, garages, roofs, siding, insulation, solar energy systems, flooring, patios, landscaping, painting, radon mitigation, residential underground oil tank removals, fences, doors, windows and waterproofing, unless the work contracted for is worth less than $200.00.” A “New Home Construction Contractor” is any person or business who builds speculative housing or contracts with a consumer to construct or sell a new home or builds any portion of a new home prior to occupancy.To check if your new home builder or renovation contractor is licensed, you can go to DCP’s web site at http://www.ct.gov/dcp and click on the Home Improvement tab. A major benefit of using a registered new home builder or renovation contractor is that DCP administers the “New Home Construction Guaranty Fund” and the “Home Improvement Guaranty Fund.” These funds are available to reimburse consumers who are unable to collect for loss or damage suffered from a registered contractor’s failure to perform under a contract. The maximum recovery from the Home Improvement Guaranty Fund is $15,000.00 and $30,000.00 from the New Home Construction Guaranty Fund. There are specific requirements for collecting from each of the funds and you should contact DCP or an attorney knowledgeable in construction law to make sure that you fully comply with all of the requirements.Once you determine that your home improvement contractor is licensed, you must make sure that the contract contains all of the required information. Connecticut law requires the following of a home improvement contract: (1) It must be in writing, including all changes and modifications; (2) It must include four dates: the date the contract is signed, the date the work will begin, the date by which the work will be completed, and the date by which the homeowner may cancel the transaction; (3) It must include a Notice of the Customer’s Right to Cancel within three business days after signing the contract. The Notice must be attached to and made part of the contract, and must be in duplicate; (4) The notice contained in the contract must be near the customer’s signature and in substantially the following form: “You the buyer may cancel this transaction at any time prior to midnight on the third business day after the date of this transaction. See the attached notice of cancellation for an explanation of this right.” NOTE: Saturday is a legal business day in Connecticut; (5) Both the contractor and customer must sign and date the contract; (6) Contractor must give customer a completed copy of the contract to keep; (7) The contract must be entered into by a registered contractor or salesperson; and (8) It must contain the name and address of the contractor.If you are building a new home, once you determine that your new home contractor is licensed, you should make sure that the contract contains all of the required information. The new home contract must contain a provision advising you that you may be contacted by the contractor’s other prospective customers concerning the quality and timeliness of the contractor’s new home construction work. You then may advise the contractor in writing upon execution of the contract that you do not wish to be contacted.If your contractor refuses to enter into a contract that complies with the necessary requirements, you should seek another contractor.It is recommended that you do not give your contractor cash advances or large up-front payments. You and your contractor should agree on a payment schedule that roughly follows the progress of the work (i.e. – 20 percent progress payments each time the job reaches pre-determined levels of completion). It is never advisable to provide the final payment until the job is complete.Finally, Connecticut law provides for certain express and implied warranties for new home construction. You should contact DCP or an attorney knowledgeable in construction law if you have a new home warranty issue.