Ask HN: How do you handle divorce as a startup owner?
I have a successful company I started almost 10 years ago with a partner and have a very good salary. MA's divorce and alimony laws are pretty straight forward (if arguably unfair in many circumstances...), and I will end up paying ~32.5% of the delta of our incomes for ~8 years as alimony. In addition to that, we split all current assets 50/50.
That includes my shares of the company. We have a recent valuation done which indicates some significant value. If I got another valuation done for this divorce i could probably present data that would push that down, however she could also get her own done and I'm sure push the value up, so we've agreed to the existing valuation (for now). MA doesn't allow for the normal "discounts" for divorce (lack of control, and lack of marketability) so in theory I owe her 50% of the theoretical value of my shares. I don't have that kind of money, and I have no way to actually turn my shares into cash. So it seems like I'm going to end up owing her a large amount of money.
If she "lets" me pay that amount off, interest free, over the term of the alimony (8 years), then I will be working my usual high stress 50-60 hours/week keeping my company going, and my wife will end up with approximately 2x the money I do, for the next 8 years. I would also be legally prohibited from just quitting and working as a mechanic (or some other lower stress lower paying job).
I don't think I can do that (mentally/emotionally/morally).
Has anyone been through anything similar or have any advice? My (very highly respected and expensive) attorney unfortunately feels that the MA law is super simple and I'm basically just screwed. Looking for alternatives that aren't awful.
Help?
It taught me that it's important to have a prenup. There are things that should be communal assets, a company is not one of those things.
Any way to just close the company down and then re-found it with your partners? Or structure it so that they "fire you" or buy you out for a fraction of the value and then give you equity bonus on rehire? I don't know if any of these things are legal, but after seeing how miserable my uncle was, I would go to extreme lengths to avoid being in a situation where I had to buy my own company back from my ex-wife.
In this case (you don't owe any cash), even splitting your shares in half might end up in a big pile of cash if your company is really successful.
That sucks though...
It may be worthwhile getting the legal equivalent of a 2nd opinion. Consulting another lawyer could be a smart play. They may confirm your attorney's advice or suggest some alternate suggestions. Also, mediated divorce settlements may be an option to explore. Here's a list in Massachusetts > http://www.mediate.com/Massachusetts/
I would look at doing a 50% profit sharing of your current and future earnings from your company with her and 50% of profits from any sale in the future, she might make more in the long run but you aren't paying 50% of the current value over 8 years.
Talk to more lawyers to make sure you get the best setup possible.
Either you buy your wife out of her share of the business based on current valuations or you can transfer half of your share holding in the business to her, if the latter is even possible. Or something in between. No easy answers unfortunately.
Do you think you can grow the business? How recent is the "recent valuation"?
I am exploring transferring 1/2 my shares to her, which is less than ideal for a lot of reasons, but I suspect she and her attorney will fight to reject that (as it doesn't give her any cash). Not sure if it's possible or not. Downside of course is that then I'm in business with my ex-wife. As is my partner. Not ideal. But perhaps better than the alternative of paying her out over 8 years on top of the alimony...
So effectively you’re asking whether you would invest a big share of your income over the next 8 years to buy more of this company as it is now, with a high risk profile. That’s a tough choice.
Any likelihood of raising capital in the near future to fund expansion / pivot? An ideal outcome would probably be to sell them your wife’s shares as part of the deal & buy her out that way. Would be tricky to get everything to line up though.
I am exploring transferring 1/2 my shares to her, which is less than ideal for a lot of reasons, but I suspect she and her attorney will fight to reject that (as it doesn't give her any cash). Not sure if it's possible or not. Downside of course is that then I'm in business with my ex-wife. As is my partner. Not ideal. But perhaps better than the alternative of paying her out over 8 years on top of the alimony...
You don’t know until you make the offer!
Something to watch out for: you’ll be paying off her share of the company out of taxed income. Make sure the numbers work for you: worst case, she earns nothing & that 32% + the fixed payment exceeds your income after tax + necessary expenses. This would be a bad outcome...
or maybe your partner is interested in owning more of the business?
At the end of the day your buying out a partner over 8 years. At which time the company will probably be growing and become worth more.
But if you are negotiating with an idiot who does not understand that bleeding you is a bad negotiating tactic, you need to get better at a) negotiating tactics and b) communicating to them why this is not in THEIR best interest. Don't talk about what you need/want/feel. Talk about how this is likely to impact her, and not in a positive way.
Make absolutely sure you are not making threats. You need to make it clear this will cost her and you need to do so in a way that cannot be construed by the court system as bad faith or threatening behavior and that cannot be construed by her as hot air or empty talk that you won't really follow through on. This is not a scare tactic. The point is to educate this fool.
For example, it might help to get figures on what a nasty, long drawn out divorce litigation costs in both time and money. (I knew we were saving like $40k or more -- money we absolutely did not have -- to divorce without lawyers. That left lots more on the table for us to split, so I didn't quibble about small things.)
Let me also recommend that you pick up "Getting to Yes" and "The Mind and Heart of the Negotiator". They are both research based and were both required texts for my college class on negotiating and conflict management. The first is a quick read. You should be able to get it through in a weekend. The second is much meatier, but I strongly suggest you do your best to find/make time for it as it contains lots of good info.
If you just cannot come up with the money, you may need to do all in your power to insist she accept stocks to cover the part of the business she is "owed."
If you can get a copy of the movie Our House https://en.wikipedia.org/wiki/Our_House_(2006_film) and also Kingdom of Heaven, both contain good lessons in effective hardball negotiating.
Please get your feelings out of the way. You need to be goal-oriented here. This is not about the fact that she is breaking your heart or doesn't love you anymore or a thousand other personal pains involved in the end of most marriages. Keep a journal or do therapy or something, but find a way to get your feelings out of your way when negotiating this settlement.
This is business, not personal. There is enormous money on the table. You must treat it like business -- and never mind that she probably won't. You need to do all you can to avoid getting dragged into her emotional crap or provoking her. Be diplomatic and sensitive to her hurt feelings, but do so in a way that sidesteps the issue as much as possible. Don't pick at old wounds. Don't throw things in her face. Stuff like that will cost you money.
This is advice rooted in having been through a divorce and managing to not screw over either party in the process.
Best of luck.