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Ten Things About Your Company That Can Be Disclosed As Part of An Ugly Divorce

Chantale Suttle • September 9, 2022
A man looks at his tablet in his workplace.

What do your divorce and your business have in common?


Plenty. Specifically, plenty that you do not want them to have in common.


Just ask Angelina Jolie and Brad Pitt about their winery and their divorce. If you thought stomping grapes was messy...


A divorce can wreak havoc on your privately held business. Corporate control issues, valuation, and individual income issues can force you to expend precious time and money protecting your company’s confidential information and other interests. Even after a short marriage, divorce can cause your company to disclose almost everything. Think you’ll be married forever? Great. But how much faith do you have in your fellow shareholders’ marriages? Prenuptial and postnuptial agreements can protect you and your company.


"Why Must My Privately Held Company Disclose Anything when a Shareholder Divorces? Can't MY Business Information Remain Confidential in THEIR Divorce?"


Before we get into what confidential company information can be disclosed in an ugly divorce, let’s first discuss why courts force companies to disclose that information. In a Florida divorce, if you own thirty percent or more of a company, you must provide a financial affidavit and a general statement of the company’s market value. At a minimum, the business will be forced to turn over tax returns and bank statements for the last three years as evidence of the owner’s income—but a court can require so much more. This is true even if you started the business, or acquired shares of the business, before you got married.


Florida courts worry that shareholder-spouses will stop their privately held companies from making distributions to reduce their income, and as a result, reduce their alimony or child support obligations. So you—or the company as a third party—must prove that the company is retaining money only for corporate purposes. You must prove that you are not shielding money from your spouse by keeping it in the company. In other types of cases, if someone accuses you of wrongdoing, the accuser has the burden of proving that you committed the wrongdoing. But in a divorce case, you have the burden (and expense!) of proving that you and the company did nothing wrong. The Florida Supreme Court placed this unusual burden on shareholder-spouses in the Zold v. Zold case 911 So. 2d 1222 (2005).


In that case, the Court analyzed whether pass-through income from a subchapter S corporation, which was claimed for tax purposes, but never distributed to the shareholder, should be considered income for alimony and child support purposes. Fortunately, the Court recognized that income reported on the individual tax return for a shareholder-spouse of an S-corporation is not necessarily the same as the income the shareholder-spouse has available for support purposes. This is because a company may retain funds—rather than distributing the funds—to uphold the company’s obligations to creditors, employees, and all shareholders. Companies may also retain funds in excess of current liabilities for a variety of other legitimate corporate purposes, such as expanding the business, purchasing new equipment, or reserving funds in the event of a natural disaster. But if you or the company cannot prove that the undistributed funds are being withheld for corporate purposes—and not to shield them from your spouse—then a Florida court will considered the undistributed funds your income for support purposes. 


"What Can My Company Be Forced to Disclose?"


Florida courts now apply this Zold approach to undistributed company funds regardless of whether the company is an S-corporation, limited liability company, or partnership. To determine whether you have met your burden of showing that undistributed funds were retained for a corporate purpose, a court will consider:


  1. the extent to which you have access to or control over the company’s undistributed funds;
  2. whether distributing the funds will cause the company to become insolvent and unable to satisfy its obligations to its debtors and shareholders; and
  3. the purpose for which the company is retaining the income.


When weighing these three factors, however, a court will give more weight to purpose for which the company is retaining the income.


"What If My Spouse Comes for My Business in the Divorce?"


If a spouse claims that he or she owns part of the business, or that he or she is entitled to share in the other’s ownership interest, that claim will also trigger additional corporate disclosure obligations. In both ownership and retained income disputes, everything that may be relevant to valuation or true income will be fair game, and court orders keeping this information confidential or under seal are very difficult to obtain. Here are just ten few examples of what the company may be required to disclose:


  1. Profit and loss statements, balance sheets; and other financial statements;
  2. Contracts and customer lists;
  3. Patents, trade secrets and other highly valuable intellectual property information-- including works in progress-- that may evidence the present and future value of the company’s assets;
  4. Sales leads, projections, and price lists;
  5. Employee compensation including bonus and commission structure;
  6. Unannounced acquisition and merger plans in infancy;
  7. Tax liens or other tax trouble;
  8. Pending suits and disputes;
  9. Noncompliance with regulatory agencies/laws; and
  10. Company crises and public relations problems that had been kept under wraps.

 

In a best case scenario, the company provides this information- at the company’s cost—by providing the non-shareholder-spouse with voluminous documentation that is turned-over to a court-appointed accountant or receiver. In a worse, but legally permitted case, a vindictive spouse demands that it receive information by deposing other shareholders and by issuing subpoenas to your company’s major vendors and customers. It most instances, the company will need its own lawyer to deal with the barrage of demands for private company information. But a vindictive spouse armed with a good attorney is not the only thing to fear.

 

A competitor can take advantage of the transparent and public nature of the divorce process, obtain the confidential information, and use it to sabotage your company in the marketplace. In addition, valued customers or vendors may learn information about your business that makes them feel insecure or threatened. The damage may linger for years. For example, statements made in a divorce regarding the company’s value (using legitimate methods to establish a lower value) may be inconsistent with later valuations for corporate purposes such as obtaining a loan (using legitimate methods to establish a higher value), rendering any reported valuation unreliable in a third-party’s eyes.

 

How Can I Limit the Damage to My Company from a Shareholder Divorce?

 

It is unlikely that a privately held company can avoid any harm when one of its shareholders experiences a difficult divorce. However, a well drafted prenuptial or postnuptial agreement can render the most intrusive and damaging disclosures unnecessary, and can limit or attribute the related costs away from the company. In some situations, these agreements can save the business itself.

 

A recent case involved three partners who built a profitable service business together. Two of the partners were married to each other, and they eventually separated. The fight over the control and value of the company was so acrimonious that a court appointed receiver took over the business. The receiver discovered and reported regulatory record-keeping violations to the government that eventually caused the business to be shut down permanently. If there had been a prenup or postnup in place, perhaps a receiver would not have been necessary, and the parties could have resolved the regulatory issues confidentially without closing the business.


"How Can I Protect My Business’ Privacy?"


  1. Require that all owners of your business get a prenuptial or postnuptial agreement that addresses business valuation and confidentiality issues.
  2. Require that the agreement insulates and protects the business by mandating that the company’s attorneys’ and accounting fees’, related to a shareholder’s divorce, shall be paid for by the shareholder-spouse or the spouse demanding the disclosures—not the company.
  3. Build in buyout clauses so that threats to corporate control can be met with a mandatory buyout of the divorcing shareholder’s interests by the other shareholders.


These are just a few examples of suggested prenup and postnup language that companies should require of their shareholders who marry or are married. More protections may be available in your state. You should consult a divorce attorney licensed in your state who has experience representing businesses. That attorney can customize a prenuptial or postnuptial agreement to meet the unique characteristics of the company and state law.


Chantale Suttle is the founder of JustPrenup.com. She has been in the exclusive practice of family law for over 27 years and has served countless small business owners in divorce court. Drafting prenuptial and postnuptial agreements for small business owners, using the experience she gained in litigation is her favorite work.


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Battle-proof Your Business Before the Divorce

By 7107328235 • March 27, 2025
A prenuptial or postnuptial agreement can save your business. Consider two dry cleaners, Ricky and Fred. Both thought they would be married to their wives until “death do they part.” Unfortunately, they both ended up divorced. Ricky walked out of divorce court personally and professionally ruined. Fred, while emotionally drained, was able to maintain and grow his successful business. Why the different outcomes? Ricky’s Story Ricky owned a dry cleaning business with Lucy, his wife of 19 years. Ricky was in charge of all aspects of the business, but Lucy did manage the company’s payroll and vendors part-time. Occasionally, she worked the front counter. For the most part, Lucy raised the children and cared for her elderly parents. When they decided to divorce, Ricky and Lucy were still civil and wanted their divorce to be amicable. Ricky and Lucy worked together, without lawyers, to craft a plan for sharing time with their teenage sons, and for sharing the family’s expenses. They also agreed to sell their house after their youngest son graduated high school. After a few months, and at the urging of a well-intentioned friend, Lucy hired a lawyer to write up the couples’ plan. Lucy’s main goal was to make sure the divorce ended fairly for her children. The lawyer, however, believed that since any small business owner could hide income, assets, or a company’s true value, then Ricky must be doing that too. Even though Lucy had a base of knowledge of the business’s finances, she trusted her lawyer and figured that he knew better. So, she agreed to his “scorched earth” strategy to protect her children. What is a “scorched earth strategy”? This is a common tactic to squeeze a business owner into a large and early settlement. The lawyer hires an accountant, and they go after every scrap of information and document pertaining to the company’s assets and liabilities, and they question it all—every argument and angle of attack is fair game. Much of the cost of providing the information and documents, and defending business decisions, must be paid by the business. Scared and desperate, Ricky lawyered up too. Unfortunately, Ricky’s lawyer couldn’t advise him on the settlement terms proposed by Lucy’s lawyer without conducting his own analysis of the company’s voluminous records. Much of the paper work involved in operating a dry cleaning business was foreign to him, and the stringent environmental regulations and reporting was overwhelming. Ricky’s lawyer had to hire his own accountant to help value the business for the divorce. Ricky and Lucy were now far from civil with one another, and the mud began to fly. Faced with dueling accountants, complicated and conflicting arguments about the business’s finances and value, and accusations against Ricky of financial wrongdoing, the family court judge appointed an independent forensic accountant to advise the court. The independent accountant saw that the business, which was the couple’s biggest asset, was crumbling because the ugly divorce was keeping Ricky from focusing on the business. The accountant was also worried about the accusations of financial wrongdoing by Ricky. So, on the independent accountant’s recommendation, the court appointed a receiver to operate and protect the dry cleaning business. Ricky and Lucy were now paying six different professionals, and trial was still months away. The receiver discovered that the company’s records did not comply with dry cleaning waste disposal regulations, and reported the non-compliance to government authorities. Ricky and Lucy blamed each other for the missing paperwork, and the sour relationship between them stalled and ultimately prevented joint efforts at an amnesty program and damage control. The business began to accrue daily statutory fines, employees were laid off, debts mounted, and the business eventually shut its doors while Ricky and Lucy continued to fight in divorce court. A year later, with no business to provide income for Ricky or Lucy, Ricky agreed to settle by paying Lucy more than half of his share of the house. Lucy accepted the offer, even though it was smaller then what she expected originally, because her share of the house was pledged to pay her lawyer’s fees. Fred’s Story Fred was married to Ethel for 22 years, and they have a daughter. Like Ricky and Lucy, Fred ran the business while Ethel was involved part-time in just certain aspects. But unlike Ricky and Lucy, when Fred bought his dry cleaning business nine years earlier, Fred and Ethel signed a postnuptial agreement to protect each other in case of divorce. The attorney-drafted agreement laid out a strict structure for evaluating and dividing the business, and for determining Fred’s true income for spousal and child support calculations. It identified and limited the financial information and documents that the business would have to disclose. It also required that the couple use a single neutral accountant (who would be paid from marital property and not by the company), to gather and evaluate that financial information and documentation. Early in the divorce, Ethel agreed that the postnuptial agreement was valid. She waived any right to ask the court to force the company to disclose more information or documents than described in the postnuptial agreement. This entitled Ethel to an immediate, fair, and higher award of support, thanks to a provision that she and Fred put in the agreement to encourage a quick resolution. Within a month, Fred and Ethel’s divorce was finalized, with minimal attorneys’ and accountant fees, and with no interference or intrusion into the dry cleaning business or operations. How could two similarly situated businesses and families leave divorce court with such different results? The first story is horrifying, but exceedingly common. Many states have onerous disclosure requirements that unnecessarily burden the time and finances of a small business. Unscrupulous divorce lawyers are trained to hone in and target a business owner’s fear of having the business’s confidential and financial information exposed to the world, to induce an early and usually unfair settlement. Fair and careful divorce lawyers will also want extensive company records, because they fear being liable for giving bad advice if they make recommendations without investigating the whole picture themselves. Either way, good lawyer or a bad one, smart judge or not, a case involving a small business can be very costly. The best way to avoid being a Ricky, is to get a prenuptial or postnuptial agreement like Fred. A good prenuptial or postnuptial agreement can render the most intrusive and damaging financial disclosures unnecessary, and can limit or attribute the related costs away from the business. In some situations, as shown above, they can save the business itself. If Ricky had a prenuptial or postnuptial agreement in place, maybe a receiver would not have been necessary, and Ricky and Lucy could have resolved the business’s regulatory problems confidentially without going out of business. Ricky and Fred were not wrong to believe in their marriages. A life-long commitment is not fanciful; it is a hopeful and beautiful goal. Most couples think they will reach that goal and that other couples will fill our country’s depressing divorce statistics. But consider this, we buy life insurance, install security systems, and wear seat belts “just in case.” They give us security even if we think that odds will always be in our favor. A careful and thorough prenuptial or postnuptial agreement can provide you, your spouse, and your business with security that all will be protected in a divorce, and that years of building a life and a business will not be burned to the ground. Chantale Suttle is the Managing Attorney and Founder of DADvocacy™ Law Firm, which is headquartered in Miami, Florida. She has been in the exclusive practice of family law for over 21 years and has served countless small business owners in divorce court. Drafting prenuptial and postnuptial agreements for small business owners is her favorite work.
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