Divorce for CEOs and Executives
Divorce can become incredibly difficult and complicated in scale with the value of assets involved. For C-Suite executives and business owners, a divorce can significantly affect their corporation and personal net worth.
Divorcing CEOs and executives must consider their business equity, bonuses, stocks, shareholders, the board, as well as how the value of the company itself will be affected. These complexities necessitate a strong legal team specialized in high-net-worth divorce cases that include businesses.
Division of Community Property
First, for the sake of this information, 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.
In any relevant divorce, stock options are a top concern. When a corporate executive or CEO 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 as a stock option in divorce, 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.
An Adverse Effect on the Company
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 the divorcing CEO of Best Buy 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.
Divorcing 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 their 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.
- Sealing Divorce Records
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.
- 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 like executives and CEOs in divorce to keep their financial details as private as possible.
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 often 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.
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. In divorce, your stock options, bonuses, and the value of the company is at stake.
C-Suite Executive or CEO in Need of a Divorce? Call Today!
The Ramos Law Group, PLLC has experience in handling corporate-entity concerns in Texas divorces, and the attorneys focus on handling the intricate details of the divorce while our esteemed clients can continue to focus on their corporate responsibilities and other important aspects of their life.
Contact the Ramos Law Group at 713-597-7069 and schedule a consultation and start on a plan to bring the best possible outcome in your divorce.