When people get married, they don’t believe their marriage will be included in the 50 percent of first marriages that end in divorce. And, when companies are formed by single or happily married individuals, they often overlook the divorce scenario when in reality, they should build the possibility into their corporate structure from the beginning.
Our advice to CEOs and senior executives is to address the possibility of divorce with the leaders of the company early on, even if the notion of divorce seems unfathomable. When the owners of the company are single or happily married, they are in the best mindset to have honest and objective conversations about how shares should be handled in the event of a divorce.
About Half of Marriages End in Divorce
Given the fact that roughly half of all first marriages end in divorce, it’s highly likely that a company will deal with some of their executives splitting with their spouses – even if they were happily married when the company was started. Despite the high risk of divorce, surprisingly few corporate structures have adopted default clauses to address the divorce scenario. This, of course, forces executives to handle it personally through prenuptial and postnuptial agreements, which can be unromantic. But there can be serious consequences for inaction, and they have even made headlines as in the Rupert Murdoch and Gary Wendt (CEO of GE Capital) divorces.
Here’s a snippet on the Wendt divorce: “In a high-stakes divorce case closely watched in corporate suites around the country, a Connecticut judge today awarded the wife of a top General Electric executive half of their cash, stocks and other hard assets, plus a part of his stock options and future pension benefits. According to his lawyers, the award is worth about $20 million. In an estate valued by her side at as much as $130 million, that would be far less than the 50 percent she had claimed for contributing to his success,” the New York Times reported.
Next: Executive Compensation & Divorce Settlements
CEOs and senior executives are not immune to life’s curveballs, which is why it’s so important to create the right ownership clauses and legal structures. To learn more, contact our firm to meet with a Putnam County divorce lawyer.