Divorces With Business Interest

February 6, 2020

Financial planning after a divorce with high-net worth individuals includes monitoring business interests and real estate. In this video, Laura Kuntz CPA/PFS, MBT, addresses important questions to consider when determining risk. Are the right business entities being used along with proper insurance? What is the record of management? Should the client be receiving corporate minutes and other documentation? When do you need business attorney oversight?


A lot of our clients do have complex situations, and when clients have complex situations, oftentimes they’ll have a business interest. They’ll have real estate or several parcels of real estate or several types of business interests. I think a lot about the clients coming out of divorce where the one spouse was very entrepreneurial and had a lot of business interests, and often times the other spouse, at least the clients that we see, maybe raised the children. Maybe they were more relational and so, they’re not well versed in business interests or real estate management and that kind of thing. These clients will often come to their attorney and say from the get go, “We just want to keep it inexpensive. We just want to split everything, so keep the costs down, split everything.” Yet, if you start to look at those business interests you start to say, “Is this really something that the less sophisticated spouse should own?”

Other businesses might be very well run. There might be an ex-spouse who’s really quite reliable in terms of judgment on the business side. That would be a different story. But what are some things one would look at to say, “Should a client who’s not well versed in business or who might end up with a minority interest, should they accept that interest?” I would look at what’s the record of management. We can’t always take our client, the one who is not the business owner, totally at face value because they’ll say, “Well, he or she just always makes money.” That’s fine, but there’s more to it than that. And then also what influence do they have? If they’re a minority owner, what voice do they really have legally and otherwise? Who really does call the shots? I think that’s an important question. And then what is the liability?

Are the right business entities being used? What business are they in? Is the right insurance being used? How risky is the business from the standpoint of environmental concerns? We’d look at the type of business and what are the real risks? And then also how dependent is our client on that coming to fruition? Is there plenty of other money or do they really need that money? Are they dependent on it? How likely is it that it will come to fruition? Another area that I think a lot about is when money is in a work plan, a 401k, a 403B, an ESOP, that kind of thing. It has a lot more liability protection than an IRA does. Now, an IRA in Minnesota has liability protection up to about a million dollars. I won’t go into all the details of how that differs from a work plan, and I probably need to be an attorney to go into it the right way, but suffice it to say that a work plan has much more protection in the event of a judgment, in the event of bankruptcy.

You think about all the professionals who are subject to liability, so attorneys, wealth managers, physicians, et cetera, et cetera. If I have a client who’s a physician and he or she is receiving part of a spouse’s work plan, should that go into an IRA or should that stay in the 401k, but be split or can it go into their own 401k? Should that stay in a work plan environment? I think that’s a very good question when we’ve got a client who’s in a higher liability profession. 

Getting back to business interests, if an individual, if a client is going to retain, split things in half and retain business interests, how does that receiving client exactly monitor? How do they monitor and who needs to be involved to monitor? Is it a financial advisor who’s experienced in business and business agreements? Is it a CPA who is monitoring certain financials and so forth and helping identifying questions? Should the client receive corporate minutes or other documentation of decisions? Should there be a business attorney involved such that the client can take documents to a business attorney or maybe they’re even automatically copied on different things? In terms of holding people accountable, in my experience, there’s nothing like having an attorney involved. Then also too, when we think about what would be the opportunity for a buyout at some point at a reasonable price? What might a reasonable price be? Again, like you said, Linda, given the client’s goals and all the factors in the situation.

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