Divorce is challenging for everyone, no matter how high their net worth or what their employment status is. However, there are definitely certain issues which make divorce a little different for high level executives like CEOs. Here are some of the pertinent issues to keep in mind when going through a senior executive or CEO divorce.
Crucially, senior level executives not only have to enter into divorce negotiations with a view to protecting themselves and their assets, but also to avoid putting their company itself at risk. If handled incorrectly, divorce carries the risk of jeopardising both the executive’s employment as well as the company’s value and continuity, and it could affect other shareholders in the business.
And the divorce of a senior level executive is different to ordinary spouses, even if they are well-paid professionals, because of the unique complexity of their business, tax, employment and financial arrangements.
Let’s take a look at several of the factors that impact on a senior level executive and CEO divorce.
1. The complexity of compensation packages
When working out income for the purposes of a financial statement to be used in property proceedings, most executives and CEOs will be remunerated with a salary plus other types of compensation. Such complex remuneration packages are often tied to company performance and longevity, whereby the employee is rewarded for staying with the company over a long period of time. Even if the benefits of longevity clauses are not realised at the time of divorce, they can still be relevant in the property settlement, for example, if the awards were granted during the marriage. The legal settlement documents are usually complex and requires careful consideration as to how such non-transferable assets should properly be dealt with.
Both parties and their lawyers need to fully understand the entire compensation arrangement, parties’ tax liabilities, any deferred compensation plans involved, and what occurs when the executive moves to a new company (especially if this happens post-divorce, when grants from a new employer should rightfully go to the executive spouse if services are rendered long after the marriage has ended). The financial and legal nuances of CEO employment packages that are unique to them need to be thoroughly understood by your lawyer.
Your lawyer will also need to conduct a full analysis of partnership agreements and shareholder agreements (and probably the company constitution as well). Shareholder and partnership agreements often stipulate methods for determining business and share value and the actions that must occur in the event of a CEO divorce.
2. CEOs and senior executives are usually very time poor
With their focus on the business, such individuals are often hampered by a lack of time to deal with divorce-related issues and tasks. However, going through divorce and property settlement negotiations is inevitably a time-consuming process. It’s vital that enough time and attention is paid to gathering and providing information and responding to discovery.
This busyness means CEOs and executives need to implement a strategy for obtaining administrative assistance with their divorce and perhaps specifically engage administrative staff to take on the burden of the grunt work.
To stay on top of deadlines amongst their busy schedules, executives typically need to schedule meetings in advance and ensure they keep a running task list with clear deadlines to meet. They need to ensure they retain a lawyer who is happy to provide them with an agenda for each legal meeting, so the executive has time to prepare questions and obtain necessary information.
3. Executives often struggle with the inability to control the divorce process
CEOs are used to being in charge and can be quite uncomfortable with having to relinquish a certain amount of control when going through litigation with all its strict rules and processes. They usually benefit from having their lawyer work out a mutually-agreed strategy with them.
4. Full and frank disclosure is even more critical than usual
There’s a risk that any issues with non-disclosure could have a negative impact on the executive’s credibility. To avoid suggestions of concealment or dishonesty that could have career re reputational implications, it’s important that accurate records are kept and provided for financial disclosure. This includes business and corporate records, financial statements, bank records, BAS and tax documentation, real estate documentation and investment records.
The need to fulfil disclosure requirements is usually time-consuming. It’s useful to consider bringing administrative support, or the assistance of an accountant.
5. Privacy issues of a CEO divorce
Litigation turns divorce into a public matter. Unfortunately, this brings the risk that information about a CEO divorce could have an impact on staff morale or business reputation with ramifications for confidence in the leadership of the company. This can have an indirect impact on stock value, so public disclosure of divorce proceedings is something for executives to be very wary of—especially if there is any risk of an ex-spouse behaving in a reckless manner or releasing salacious information into the public domain that could further impact reputation.
Reputation management may be necessary if unwanted public disclosure takes place, especially for high-profile individuals. Executives must have a plan to mitigate any fallout that could impact on their reputation or that of the company. This is particularly important since compliance with obligations under the Corporations Act means executives have a duty to act in the best interests of the company and shareholders, even when going through something personal like separation or divorce.
A decision on whether to keep staff in the loop has to be made before rumours and speculation arise. It may be a better strategy to pre-emptively release an agreed statement about the executive’s marital breakdown to reassure staff about the continued operation of the company and that the personal issues won’t affect the business.
But why risk publicity of any kind when it’s possible to negotiate and settle your divorce confidentially, without the public exposure of going to court? This leads to our next point…
6. There’s an increased need to seriously consider ADR
The Alternative Dispute Resolution processes (ADR) of collaboration, mediation and arbitration all keep divorce proceedings private and are also much faster than going through the court system. Apart from the benefits of confidentiality, having a speedy resolution to divorce is a far better option for executives who cannot afford to wait years for resolution through litigation.
If at all possible, CEOs and executives should consider resolving their separation conflicts using one of these methods. Collaborative practice ensures a financially neutral party works with parties’ accountants and provides the information to a professional more qualified to analyse and interpret it than a family lawyer is. (Give us a call to discuss whether a collaborative divorce may work for you – we specialise in this form of ADR.)
7. Executives have the benefit of experience in negotiating
An aspect of an executive divorce which is more positive than the above-mentioned issues is that CEOs and other senior executives are advantaged by the simple fact that they are used to operating a business using many of the same techniques and strategies as are involved in divorce negotiations.
Finally, we’ll just take the opportunity to reiterate the need to consider entering into a Binding Financial Agreement with a potential spouse to protect assets and also third party business participants from future upheaval caused by a senior executive or CEO divorce.
If you need assistance with a family law matter, please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Legal Services on (02) 6223 2400.
Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Legal Services.
You may also like to read our blog on how to divorce-proof your business.