Part 1- Unique Discovery Issues
If you are the owner of a closely held business and you are going through a divorce you probably have a number of questions. Owning a closely held business necessarily complicates your divorce. Ownership of a closely held business creates unique discovery, classification, valuation as well as distribution issues. The first part of this series will focus on unique discovery issues that may arise where the owner of a closely held company is going through divorce.
Content of Discovery – As an owner of a closely held company you may be surprised at the amount of information that will be requested in discovery. Typically, the request will include five years of financial information which includes tax returns, balance sheets, and profit and loss statements. However, it may also reasonably include compensation of all employees and officers; key-man insurance policies, all company contracts, and customer lists.
Confidentiality – Many owners of closely held businesses object to the production of certain company information on the grounds of that the information is confidential. What is considered confidential is generally speaking more broadly defined than most owners would like. In addition, in most cases the confidential information is discoverable following entry of a confidentiality agreement or a confidentiality order.
Control – During divorce, if one party has been primarily involved in the business he or she will have the easiest access to the documentation. Typically, this means the other party may have to spend additional time and money to obtain the information needed. It is not uncommon to have to seek the court’s assistance to compel the production of necessary information. In most cases there will be a discovery order which sets out deadlines for requesting this information as well as deadlines for the production of expert witness reports. In cases where there is a closely held business involved it is imperative to work with an attorney who is experienced in these matters to ensure that the necessary information is requested properly from the party who is in control of the documentation to ensure that discovery deadlines are met.
Continued Operation – Another unique issue in cases involving closely held businesses is what happens to the company’s operation pending the divorce. In cases where only one party has been actively involved in the business, the court will likely allow that party to continue operating the business unless issues may arise regarding that party’s business judgment pending the divorce. In cases where both parties have been actively involved in the day to day operations of the business, the court may need to decide who will handle the day to day operations if the parties are unable or unwilling to continue working together.
If you are the owner of a closely held business the best thing you can do to protect your business during divorce is to hire an attorney experienced in complex property distribution cases; someone who understands the unique discovery issues that arise in cases involving closely held businesses.
Contributor: Carole Gailor, a divorce lawyer with Raleigh based Family Law firm in North Carolina. Gailor & Hunt, P.L.L.C. For more information contact: Raleigh, North Carolina Family Law Firm, Gailor & Hunt at 1101 Haynes Street, Suite 201, Raleigh, N.C. 27604. Tel: 919-670-2925
Disclaimer: The information contained in this article is intended as a general guide and is not to be used as legal advice by Gailor & Hunt, PLLC. You may contact North Carolina Family Lawyers Gailor & Hunt, PLLC, a full service divorce law firm, at 919-670-2925 or 910-509-7223.
Who gets the family business in a divorce? Will I continue to co-own it with my spouse? Will I have to buy out his or her interest? How will my business be valued? Will I need to hire an expert? In this episode, host Jaime Davis and her law partner Nicole Taylor discuss the answers to these questions and more concerning what happens to the family business in a divorce.