Mar 25, 2014

The Executive Divorce – 10 Strategies for Keeping It Private

Executives, such as self-employed presidents of closely held companies, the C suite (CEO, CFO, etc.),executive employees, officers, and directors, are charged with managing and directing other people in a company.These executives are trusted with significant responsibility including day-to-day operations and future direction of a company. As a result of this responsibility, their personal lives, if made public, may have an impact on the company they work for – particularly with respect to the issue of divorce.When an executive is faced with divorce, the impact of the proceeding on the executive’s position within a company and the company itself may not receive the priority and privacy it deserves because divorce proceedings are a matter of public record in most states, including Illinois. Take for example the divorces of media tycoon Rupert Murdoch, CEO, Hubert Joly, and oil mogul, Harold Hamm. Each of these had a public presence that quickly attracted media attention. This brought the public to the personal issue of divorce, as well as less than desirable attention to each of the companies the individuals worked for.The public nature of divorce demonstrates the importance of safeguarding the privacy of an executive’s divorce. Moreover, there are a number of key considerations that warrant maintaining privacy for the executive, spouse, and company. For instance:(a) From a personal standpoint:i. The high profile of those involved may attract media or other unwanted attention;ii. Conflict may lead to mudslinging and acrimonious litigation. This could result in private and embarrassing details of the relationship, history, children, and life being exposed to the public. This in turn could put the executive’s job and income stream at risk due to the details disclosed and attention taken away from job responsibilities;iii. Financial circumstances may be referenced expressly in filings, proceedings, and the like, making them a matter of public record. Depending on what is disclosed it may adversely impact holdings; andiv. The more that is in the public record the more there is for the public, which includes family members (i.e. children), to learn.(b) From a company standpoint:i. By the nature of the marital relationship, the executive’s spouse inevitably has some degree of knowledge about the company the executive works for. This may include: compensation structure, stock grants/holdings, trade secret information, strategic plans of the company, and other confidential information. A confidentiality agreement with the company and executive may address some of this; however, if the spouse does not have a similar agreement the information may still go public.ii. Shareholder behavior as well as employee performance and retention may be influenced, which potentially impacts the company. For instance:i. If the executive has a significant stake in the company, a divorce could impact the controlling interest in the company depending on how assets are divided. This in turn could impact how the company is operated and who is in control of those operations.ii. The executive’s decisions for strategic movement of the company may be impacted by the divorce. As an example, the uncertain financial position of the executive post-divorce could result in more conservative and risk-averse decision making. This can also have an adverse consequence on shareholder return, business growth, and employee prospects.iii. An acrimonious divorce may impact the executive’s productivity and performance. If the executive’s productivity/performance is down this can have an adverse impact on the company he/she works for.iii. While the above points are clearly evident with publicly traded companies, they apply equally to closely held companies as the community and employees pay attention to what is going on and how the issue is handled.The best way to confront this privacy threat is to plan, plan, plan! The following are ten strategies for preserving privacy for the executive, spouse, and in turn the company:1) Have a candid discussion with your spouse about what happens in the event of divorce.2) Plan for divorce before it happens with prenuptial agreements and postnuptial agreements.3) If divorce is imminent, try to work with your spouse and/or their attorney outside of court first – unless safety, health, financial, or life circumstances leave you no viable alternative.4) Child related issues are one of the most fiercely litigated areas in a divorce case, try to resolve this early on, if possible, to reduce litigation.5) Get confidentiality agreements before disseminating information.6) Consider ways to minimize the time in the court system, such as gathering and exchanging information before filing.7) Retain experts early. Bring them in upfront to streamline the process of information gathering and sharing, which can in turn reduce the amount of litigation needed.8) Try to resolve matters by agreement, which can reduce time spent in the court system and therefore in the public eye.9) If resolving matters is not feasible, consider alternative conflict resolution methods to keep the matter out of court.10) Consult with an attorney who can strategically guide you to plan for, prepare for and get through the divorce process with as much of your privacy as practicable.When you make your estate plan, you plan for the tragedy of death, divorce is no different. Don’t wait until you’re facing a divorce to confront the issue of privacy. Both the executive and his/her spouse have an interest in maintaining this privacy. The less time spent in the public eye over the issue of divorce the better for everyone, including the executive’s company. Start planning today, just like you would for any other tragic event, and consult an attorney that can guide you pre-divorce through post-divorce.

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