When CEOs announce they are getting a divorce, sometimes shares of the company can trade higher, or they can fall. Often, what makes the difference in this rise or fall is the existence or nonexistence of a prenuptial agreement. Most commonly, shares will fall in the absence of a prenup and if they rise because of the divorce news, there’s an ironclad prenup in force.
In many situations, a prenuptial agreement means the CEO’s spouse does not have access to his or her economic stake in the company. In contrast, when there is no prenup and news of the CEO’s divorce leaks out, the CEO’s stake in the company is at risk subject to New York’s laws of equitable distribution.
Even though a company may not believe that an anticipated divorce would have any direct impact on the business, others may not be as convinced. Some may argue that a CEO’s divorce could lead to:
- The CEO having to pay a significant amount of his or her stock to pay their spouse in a divorce settlement, or
- The judge forcing the CEO to give his or her former spouse some of the company’s stock.
In either of the above situations, the CEO could end up losing the majority control. These concerns indicate that shareholders should pay attention to the personal lives of their CEOs, and they should take it to heart when they make investment choices.
How CEO Divorce Can Impact Shareholders
When it comes to CEO divorce, there are three key ways that it can affect a corporation and its shareholders:
1.) Loss of control: If a CEO has significant ownership stake in the corporation, he or she can be forced to sell or transfer part of that stake to their former spouse through the divorce settlement.
2.) Loss of productivity: Understandably, the divorce itself can negatively affect the CEO’s energy, concentration, and ultimately his or her productivity.
3.) Loss of risk appetite: It’s not uncommon for a divorce to influence a CEO’s attitude toward risk, especially if he or she felt like they “lost it all” in their divorce. If the CEO experiences a sudden loss of wealth because they lost equity in the company, their appetite for risk can be dampen, and therefore it can affect how they make decisions.
Looking for a Putnam County divorce attorney? Contact the Law Office of Dennis R. Vetrano, Jr., LLC to schedule a consultation.