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33 claim. If successful, Jerrod would end up paying a portion of what he gained to Penelope in the form of support. There’s no guarantee Penelope would succeed. Still, it makes sense, says Maisel, to codify the original compensation arrangement in the shareholders’ agreement if they intend to continue as business partners.
A spousal support claim could also arise if
one buys out the other. It all depends on the sale price, Maisel notes. “Say her half’s worth $10 million after tax. It may be that the investment income she earns on it will be suf cient to meet her living needs. A judge may say, ‘You’ve got $10 million; you could easily earn 5% on it conserv- atively, which is $500,000. You don’t need any
more support.’ ” The agreement must also cover the possibility that Jerrod, for example, remarries and gets divorced. “It should say something to the effect that, ‘If you get married, you must have a marriage contract stipulating your future spouse can never acquire your shares,’ or ‘Your shares shall be excluded from any net family property calculation,’ or both.” This would preclude future spouses making a claim on the shares.
The solution
Despite the bitterness of their split, Penelope and Jerrod decide to continue as business partners. Against his advisors’ counsel, Jerrod hires a com- pensation expert because he’s convinced he’s worth more than Penelope. The expert says Jerrod’s sal- ary should be $450,000, and Penelope’s $275,000. Penelope warns she’ll le a spousal support claim if Jerrod insists on including these salaries in the shareholders’ agreement. He’s willing to take his chances and a legal battle ensues.
The court agrees with Penelope, so nancially Jerrod ends up where he started—less $200,000 in legal fees, just as his advisors warned.
The legal battle has made it impossible to con- tinue as business partners. Constant bickering in the boardroom and time away from work nega- tively affect business and employee morale. The best option is to sell. AE
CLIENT ACCEPTANCE
2/10
Neither Jerrod nor Penelope is keen on leaving the business, but they realize selling the whole company is the only option. They can’t work together, and their behaviour during the split has poisoned their once-strong relationships with management and other staff.
No one within the company’s senior management can get nan- cing, so Penelope and Jerrod approach their old bosses, who are happy to get rid of a competitor. They heard Penelope and Jerrod’s personal animosity was driving the sale and used it to their advan- tage, whittling down the price to below fair market value.
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