Q & A Table of Contents
I'm In The Middle Of My Parents' Divorce
From: Chris, California
Question: I have been given 50% ownership of our family's engine machine
shop. Mom and Pop are getting a divorce and I want to purchase the remainder
of the business from them. Pop, who still works in the business, will
accept payments from me over time, however Mom wants her share now so that
she can move on. She wants to open her own business of some kind.
Here is where it gets complicated: the divorce settlement will consist of
Pop giving up all interest in their jointly-owned house and me coming up
with a lump sum to pay for Mom's share of the business. How do I get her to
take less for her share in order to make this more affordable for me?
I do feel I have a few good cards to play, namely; #1 If she wants to force
a sale of the business Pop and I will walk, with that the case I don't think
anyone would buy knowing that 25% of the workforce will walk. #2 She is
walking away with more money at one time than I will ever see out of this
business; she leaves and I get the bill, which I don't deny paying for the
remaining percentage but let's not be greedy for it all at once.
How can I get her to take less while realizing that she is getting a good
deal?
Response: The most important thing to do is to ask your Mom for a
face-to-face conversation about how best to deal with the situation.
There are an awful lot of questions you could ask that might just help you
devise a proposal that works for both of you:
Before raising the questions, I am curious: when you were given the 50%
share of the business, who was the owner who made the gift? If it was your
Pop alone, was this something he did to keep you in the business? Was it
done in contemplation of the divorce, an attempt to reduce the assets
vulnerable to a divorce settlement?
Who owns the other 50% of the business? If it is your mother, that can have
one set of implications; it it is someone outside your family, that's
another matter.
So here are some questions to address:
a. What is the market value of the business?
You may find that a business broker or some other disinterested third party
can do a fair appraisal that will mean that neither you nor your mother is
pitting one person's opinion against another. The market value of the
business should be appraised both in its present condition (with you and
your father continuing to be involved) and in its possible future condition
(after you and your father quit).
The money such an appraisal would cost should be well worth the investment.
If both you and your mother pay 50/50 for the appraisal, then neither of you
can say: "It was your appraiser, not mine, who concluded that was the value
of the business." What if your father were to join in paying for the
appraisal?
b. When your 50% ownership was given to you, was there a value placed on the
gift by any taxing authorities? Did any parties have to pay any taxes on
the gift?
c. Has a court made any determination of value? Has a court determined a
deadline for concluding the financial elements of the divorce?
d. You should ask as diplomatically as possible what your Mom's feelings are
about your future. What kind of relationship does she want to have with
you? What interest does she have in your capacity to survive and perhaps
even thrive financially?
e. Does your mother need a particular amount of money to get her new start
in life? If you cannot supply the entire amount she wants from you in the
form of a purchase price for the business, would you be comfortable
co-signing a bank loan using all or part of your share of the business as
collateral?
f. While she may want lots of money immediately, how would she feel if you
offered to pay a little larger total, but could spread the payments over
time?
g. Although I have no idea of the issues that led to the divorce, sometimes
parents use their children as pawns to punish each other. Is this relevant
to your situation?
To sum things up, Chris, you need to listen hard to what your mother
indicates about her interests -- why she is pursuing her various objectives.
What you learn from her may be tremendously informative, opening doors to
ways to devise creative ways to solve the problem you are facing.
I wish you good luck.
Steve
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