As a seasoned family law attorney, former business owner, and divorcee, Bob Matteucci of Matteucci Family Law understands better than most people in the Albuquerque area what all is at stake when business owners get divorced.
Thanks to New Mexico’s community property laws, which give each party the legal right to walk away from the marriage with 50% of the value of any shared assets, the family’s livelihood may be on the line. In these cases, planning for the future means thinking about the business as much as the people who built it.
Attorney Matteucci has the unique skills necessary to handle these cases. Before earning his J.D. with a concentration in Business Law from the University of New Mexico, Bob graduated from Tulane University with an MBA and was the owner of a profitable shoe store that generated over $5,500,000 in annual sales.
He knows how to dig into complex financial documents and estimate the value of illiquid and indivisible assets. He can also suggest ways to apportion the value of these assets in a manner that does not diminish their utility.
And he can do this all while recognizing the steep emotional tax divorcing business owners are forced to pay.
New Mexico’s Community Property Laws Require Couples to Divide Up Assets
New Mexico is a community property state. This means there is a presumption that any property acquired during the marriage is owned equally by both spouses. At divorce, the value of all this jointly owned property must be divided equally between the spouses.
This may sound simple since dividing by two isn’t that hard, but the reality is much more complex. Real estate, investments, and businesses cannot be easily chopped in half.
The easiest solution is selling everything off and dividing the proceeds, but that is often not the best way to maximize value or ensure both parties are secure in their post-divorce future.
It’s often better for one spouse to take sole ownership of the couple’s business interests while the other receives an equivalent share of different marital assets or some sort of spousal support payments (aka alimony).
Negotiating such an agreement can be challenging, but Attorney Bob Matteucci helps his clients navigate this financial and emotional minefield by laying out as many options for them as possible.
Factors Complicating the Division of a Jointly Owned Business
Negotiating an agreement that allows both partners to walk away from the marriage with their fair share of a business they have poured their blood, sweat, tears, and capital into is not an easy task. It is complicated by a variety of factors.
- Valuation Disputes: Differing opinions on the value of the business — especially if it has unique assets or is viewed as a pillar of the community — can lead to contentious negotiations. In many cases, it is best to hire a professional appraiser who can assess the full value of the business rather than guessing at the business’s worth.
- Future Earnings Potential: Projecting and fairly dividing future earnings can be contentious, especially if profits to this point have been minimal but there is the potential for a huge upside.
- Ownership Structure: Depending on what sort of entity the business is (partnership, LLC, corporation) and how many people other than the couple are also owners, it can be very difficult to determine who owns what portion of the business. Other owners may even need to be bought out so the couple can divide ownership of the business.
- Financial Entanglements: If the business itself has taken on debts, made investments, or entered into other financial arrangements, it can be difficult to decide how to move forward.
- Managing Emotional Upset: Running a family business is an intensely personal endeavor. Attempting to divide a business or remove someone who has poured their heart and soul into it from the ownership team is never an easy task.
- Operational Roles: If both spouses are actively involved in day-to-day operations, their roles must be redefined or one must be bought out, which can be difficult and emotionally charged. Attempting to work together post-divorce is rarely successful, and is not recommended.
- Staying in Business: When a family’s financial security depends on the business continuing to operate, steps must be taken to ensure the current value and future earning potential of the business are secured.
- Intellectual Property: Dividing ownership of patents, trademarks, or proprietary technologies can be challenging since these are difficult to value but are sometimes the most valuable assets owned by the business.
- Navigating Tax Implications: Dividing business assets can have significant tax implications. Rushing to an agreement in order to finalize a divorce can end up unnecessarily harming both parties when the tax bill comes due.
- Business Agreements and Prenuptial or Postnuptial Agreements: Business agreements and/or prenuptial or postnuptial agreements signed before the divorce can dictate how business assets are treated during divorce proceedings.
- Maintaining Confidentiality: Divorces are part of the public record in the state of New Mexico, but the details of a divorce do not have to be. Most business owners prefer to negotiate a divorce agreement that keeps their personal information private instead of litigating their separation. Being discreet is often the best way to protect the business’s reputation from people who would have a negative opinion about the divorce or seek to leverage discord for their own gain.
Different Pathways to Divorce for Business Owners
Few business owners would voluntarily cede control of their enterprise to the court system, but that is exactly what happens in divorces where a couple cannot find a way to amicably divide their business assets.
In these cases, the judge typically takes the path of least resistance, which means forcing a sale and dividing the proceeds. And to add insult to injury, this is all done in a public forum where competitors and the curious can hear details about one’s business and marriage that would otherwise be kept confidential.
To prevent such a public spectacle from occurring, most business owners reach a settlement with their soon-to-be-ex spouse and have its terms quickly and quietly approved by the court. To get to that point, there are a variety of paths one can take:
- Negotiation: Many couples in the Albuquerque area are able to hammer out the details of their divorce in a shuttle diplomacy format with each party in a room with their attorney and a settlement facilitator going between the rooms in an effort to reach a final settlement. As long as everyone is committed to finding a way to avoid going to court, an agreement can usually be struck quite quickly.
- Bringing in a Neutral Third Party: When negotiations have reached a stalemate, or there are particularly complex assets to split up, it may be wise to bring in a special master or other professional that can push for a resolution agreeable to everyone involved.
- Mediated Divorce: Mediation is the preferred choice of couples who generally agree on the terms of their divorce but need assistance resolving a few conflicts or decide how to fairly divide complex assets. The mediator does not represent either party, but steers both sides to a mutually acceptable resolution, and drafts all the paperwork necessary to formalize the divorce.
- Collaborative Divorce: Couples who still have a level of trust and respect for one another, but need help dividing up complex assets may benefit from a collaborative divorce. Attorney Bob Matteucci is one of a handful of lawyers in New Mexico who are certified to guide couples through this process, which relies on the assistance of professionals like financial planners and counselors to bring the relationship to a close.
Serving Families with Dignity & Compassion
Bob knows from personal experience what is at stake when a business owner is getting divorced. He is here to help you and your soon-to-be-former spouse navigate your separation while minimizing the impact it has on your business and your post-divorce life. Contact the Matteucci Family Law Firm today to schedule a meeting.