Divorce and Family Mediation

When a divorce involves a closely held business, the law is rarely the hard part. The hard part is the valuation, the liquidity, and the fact that neither spouse can afford to destroy the thing paying for both households. A judge has blunt instruments for that problem. A mediation has better ones. Most family law disputes settle. The ones that grind are the ones with an illiquid, hard-to-value asset sitting in the middle of the community estate: an operating company, a professional practice, a partnership interest, a real estate portfolio, an equity package that vests over the next four years.

Those cases stall for predictable reasons. Two credentialed experts produce numbers several million dollars apart, and both of them are defensible. The asset cannot be split in half without ruining it. The spouse who keeps it cannot write a check for the offset. The spouse who leaves does not want a promissory note secured by a business the other one runs. And underneath all of it, the discovery required to litigate the valuation is itself corrosive to the business. A mediator who has not sat with those problems before will spend the day shuttling numbers. That is not what this practice is for.

You should not have to spend the first two hours of a mediation teaching the neutral your case. The following come up in nearly every owner’s divorce:

• Characterization and tracing — entities formed before marriage and capitalized during it, commingled distributions, capital account movement, and the clear-and-convincing burden on separate property.

• Personal versus enterprise goodwill — whether the value walks out the door with the owner, and how much of a valuation report survives that question.

• Reimbursement for time, toil, talent, and effort — the undercompensated owner-spouse of a separate property entity, and the offsetting claim for community benefit received.

• Fraud on the community and the reconstituted estate — unusual distributions, insider compensation changes, and pre-filing balance sheet activity.

• Executive and deferred compensation — restricted stock, vested and unvested options, phantom equity, profits interests, carried interest, SERPs, and the coverture fraction arguments that follow each of them.

• Transfer restrictions — buy-sell agreements, operating and partnership agreements, lender consents, and franchise or licensure limits that constrain what the decree can actually order.

• Liquidity and structure — owelty notes, secured payment schedules, redemption by the entity, earn-outs, life insurance and collateral packages, and default remedies that do not require a new lawsuit.

• Tax — allocation of pass-through income in the year of divorce, basis and built-in gain, the consequences of dividing versus buying out, and why a headline number and an after-tax number are different settlements.

• Continuing entanglement — a spouse on payroll, shared professional practices, and the question of who is still doing business with whom on January 2.

Having a mediator who is experienced and understands all of these complex issues is key to reaching a just and right resolution that both sides can actually live with and finance.

Based in Austin, Texas, Chris offers mediation services both in-person and via video conferencing — making it easy to work with parties regardless of location.