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CASESTUDY
by DEAN DiSPALATRO,
senior editor of Advisor Group
CO-OWNERS’ DIVORCE LEAVES BUSINESS IN LIMBO
CLIENT PROFILE
Jerrod, 58, and Penelope, 54*, each hold a 50% stake in a clothing
distribution company they founded 15 years ago. Penelope’s the
CFO and Jerrod’s president and head of sales. The rm has annual revenue of $25 million, netting $2 million after salaries of $400,000 each to Penelope and Jerrod. Their marriage has been shaky the last ve years; this year they split, creating planning issues their advisor will need outside experts to resolve.
There are three children: Cecilia, 30 and Edmond, 26, both from Penelope’s previous marriage, and Sam, 16, whom Penelope and Jerrod had together. Cecilia is a sales manager and Edmond is a warehouse supervisor at their parents’ rm.
*This is a hypothetical scenario. Any resemblance to real persons or circumstances is coincidental.
The options
Jerrod and Penelope met and married when
they were employees at a competitor rm. Their nancial situations were similar, so they didn’t bother with a marriage contract or shareholders’ agreement.
The split leaves them with three options:
1 They manage their differences and stay in business together.
2 They can’t co-operate, so one buys the other out.
3 One or both sell to a third party.
A shareholders’ agreement is the key tool for managing multiple possibilities under each of these scenarios. But, before they draw one up, they need a separation agreement.
This typically covers property, spousal support and child support. It can also address family- related company matters.
For instance, Penelope may worry that, if she lets Jerrod buy her out, he’ll hand Cecilia and Edmond pink slips out of spite. Jerrod may be
deterred by potential wrongful dismissal suits, but it still makes sense to use the separation agree- ment (or another, separate agreement) to prevent the rings, says Neil Maisel, a partner at Crowe Soberman.
Penelope could also insist on requiring all three children being treated equally. So, if Jerrod eventually transfers 10% ownership to Sam, then Cecilia and Edmond would get the same.
The experts
JORDAN CAPLAN
partner, Audit & Advisory, Crowe Soberman LLP
in Toronto
NEIL MAISEL
partner, Valuations, Forensics & Litigation, Crowe Soberman LLP in Toronto
32 AE 01 2015
www.advisor.ca