Divorce For CEO’s & C-Suite Executives

With Amazon founder & CEO Jeff Bezo’s multi-billion-dollar divorce in the news, many corporate executives and C-Suite denizens may wonder how a potential divorce would affect their corporations and personal net worth. There are multiple-levels of intricate financial matters to consider when dividing assets in a divorce that includes a corporation or other corporate entity. Bonuses, stocks, dealing with shareholders and the board, as well as the value of the company itself must all be considered. Divorces involving corporate executives are multi-faceted and complex, which necessitates the involvement of a strong legal team experienced in high-net divorces that include businesses.

First, for the sake of this page, we will assume that the corporation is fully community property. That means that the company was created and incorporated after the date of marriage. No part of the community is a spouse’s separate property and the entirety of the company – stocks, accounts, business value, ownership of the business itself – are subject to a division in the divorce.

Stocks

The public’s perception of a publicly-held corporation, such as Amazon, is often tied to its stock market value. When a corporate executive is going through a divorce, chances are high that shares in that company’s stock are going to be divided in the divorce. Investors want to know how that will affect the company in the short-term and the long-term.

If the spouses decide or are ordered to sell shares of the corporation as part of the divorce settlement, then those shares become part of that corporation’s “free float.” The free-float methodology is calculated by taking the stocks’ equity price and multiplying it by the number of shares readily available in the current market. This method is a good way to reflect the market’s current movements and active changes in the market, such as the sale of a large share of stocks in a divorce. According to the free-float methodology, if a large chunk of shares were to be sold off in a divorce, then index-fund managers would need to buy more shares, thereby potentially boosting the corporation’s weighting in the S&P 500 and actually increasing the company’s value.

The opposite could also occur, where a messy divorce or quick sale could spark fear in investors, who in turn would quickly dump their shares in something more secure in the near future. This occurred for Best Buy CE Hubert Joly when he sold nearly $17 million shares of stock. Best Buy was forced to confirm that the sale was related to a divorce and not anything investors should be worried about. When it comes to corporate shares, it is important for the team handling the divorce to consider market fluctuations and public perception before making any decisions as far as division of the couple’s shares in the company.

Another consideration when dealing with stocks is the concept of vested stocks versus unvested stocks. Vested stocks are stocks that are past the “vesting period,” which is the period of time before shares in a stock option plan are unconditionally owned by a shareholder or employee. If the shares are vested, that means they are owned outright. If the shares are unvested, then the granting company has set aside those shares of stock; however, there is still a waiting period, or certain conditions must be met before those shares become vested.

Vested stocks can be easily dealt with in a Texas divorce as they are owned outright and can be considered like any other asset. Unvested or restricted stock can be complicated and involve vesting periods that outlast the length of the marriage, making it both community property and separate property asset. Given the complicated nature of unvested stock, it is essential to go over options with a family law attorney who is well-versed in the nuanced technicalities of dealing with publicly-traded corporations in a divorce.

Confidentiality

CEOs and other executives in publicly-traded companies are mandated to file an SEC report for any proposed sales of stock owned in their own company. As one can imagine, this can be directly in conflict with a corporate executive’s goals of keeping the terms of a pending divorce or property settlement discreet and confidential.
Adding another layer to the disclosure requirements, most Texas divorce records are open to the public, meaning most filings, including property records such as inventories or the final property division itself, can be subject to public scrutiny.

How to combat this? Parties may file a Motion to Seal Records. Then the presiding Court will determine if the parties have a valid reason for sealing their divorce record. This can sometimes be done to protect the security and proprietary information about a company, so there is precedent in this occurring. A Texas divorce attorney would be able to give a qualified opinion as to whether this is an option in a pending divorce involving a corporation.
Another option would be utilizing an Agreement Incident to Divorce. This is a written agreement entered into in conjunction with the actual Final Decree of Divorce. This Agreement is referenced in the Final Decree of Divorce and is binding upon the parties however the Agreement is not incorporated in the decree. This means the specific terms of the division of property, notably all the financial aspects, are not included in the Final Decree of Divorce nor are they available for public consumption. An Agreement Incident to Divorce is entirely confidential and also enforceable as a contract. This is an excellent option for high-net individuals interested in keeping the financial details of a divorce as private as possible.

Bonuses

Corporate executives are often the recipients of high-value bonuses. These may include a sign-on bonus, performance/incentive based or quarterly revenue bonuses. Any income, including bonuses, received during the course of the Texas marriage are considered community property and subject to a just and right division in a Texas divorce.

Often bonuses are paid out over a period of time or in a different calendar year. If the parties finalize their divorce in December of one year, but a corporate spouse is entitled to a bonus for that calendar year the following March, the Court and the parties must account for that projected bonus as it was earned during the marriage (even though the payout date may be later). If the parties were divorced in June, but a bonus was not issued until March, then that bonus would be partially community property and partially separate property.

Other Corporate Assets

Corporate executives have access to private transportation such as private jets and cars. If not, then often they can own a sizable amount of airline miles acquired throughout their executive career (and marriage). These must all be disclosed and divided in the divorce as well.

Public Perception

Corporate executives are well-versed in the concept of public perception and how their personal lives can have a positive or negative effect on their publicly-held company. Both Rupert Murdoch, of Newscorp, and Elon Musk, of Tesla, dealt with public divorces that had a direct impact on their company’s public perception and market value. While the SEC does require reporting for any proposed sales of the company shares, it requires only minimal reporting when it comes to disclosing “personal matters” such as a divorce or illness. Supreme Court rulings have been inconclusive as to whether a pending divorce would constitute a mandatory disclosure. Given that uncertainty, it is important to consider how a divorce will impact a company.

Texas Divorce Considerations

As Texas is a community property state and there is often a great deal involved in a corporate entity being divided in a Texas divorce, it is vital that a CEO or other corporate executive seek competent legal counsel well-versed in the intricacies that come with such a division of property.

CEO, C-Suite Executive? Need a Divorce? Call Today!

The Ramos Law Group, PLLC has experience in handling corporate-entity concerns in a Texas divorce, and the attorneys focus on handling the intricate details of the divorce while our esteemed clients can continue to focus on their corporate roles and responsibilities.

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