23 Feb February 26, 2020 – EntreDivorce Jacqueline Newman, TomTom Nick Cohn and Education Christina Riley
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Jacqueline Newman – High Net Worth Divorce Expert and Author of The New Rules of Divorce: Twelve Secrets to Protecting Your Wealth, Health, and Happiness
At the end of the day, there is element of divorce that is a business
decision and you need to be smart about it. As much as you can
put your emotions to the side, I think that will make you happy.
Jacqueline Newman is the managing partner of the divorce law firm Berkman Bottger Newman & Schein LLP in New York City. Her new book describes the latest in protecting entrepreneurial wealth. She specializes in complex high net worth matrimonial cases and also in negotiating prenuptial agreements. Her practice consists of litigation, collaborative law and mediation. She appears regularly as an expert commentator for various television, radio shows and print publications, such as The New York Times, The New York Post, Business Insider, TIME, USA Today, and Glamour.
Nick Cohn – Senior Product Manager for Traffic at TomTom
Up to one in four cars are connected to TomTom, helping
to update the traffic information.
Nick Cohn is Senior Product Manager for Traffic at TomTom and leads the TomTom Traffic Index. Nick has been working at TomTom since the launch of the first navigation integrating real-time traffic information and has worked for many years to help businesses and governments innovate and use new sources of traffic data. His vision for the future is that road authorities, mobility service providers and governments can reduce congestion and emissions through collaboration. His background includes traffic modeling and transport planning. Now in its 9th year, this edition of TomTom’s ongoing report measured traffic congestion in 416 cities globally capturing real-time and historical GPS data to provide the world’s most accurate barometer of congestion!
Christina Riley – Director of Curriculum Design at EL Education
Educational progress is a little stagnant. We need to make sure
we are doing what works.
Christina Riley is currently the Director of Curriculum Design, overseeing curriculum design for EL Education. Prior to this, she was a lead designer on the nationally renowned EL Education English Language Arts curriculum, which is currently EdReports’ highest-rated elementary ELA curriculum. Before joining EL, Christina served as an Elementary Curriculum Design Specialist for Socratic Arts, designing a STEM curriculum for elementary students, and participated in various curriculum design projects as an independent consultant including creating educational resources for middle school students for a NASA/ISTE project. Christina began her career in education as an elementary teacher and subject manager at public schools in the UK before moving to teach at two international schools in Japan.
Highlights from Jacqueline’s Interview
Entrepreneurial Divorce
One of the biggest rules that we’re getting rid of is that, back in the day, we used to think in regards to custody that mom got custody and dad had every other weekend and Wednesday night dinners, and that’s just not the case anymore. Now, we’re in a situation where there’s much more 50-50 parenting time going on. If a dad comes in and says, I want equal time with my kids, courts are really entertaining that and I’m seeing this major shift. Of course, having dads more involved is ultimately shifting into other things; from a financial standpoint, you have more women in the workplace. Therefore, that’s affecting the way that spousal support is being awarded. So really, we’re seeing this entire transition happening in the world of divorce.
Another thing people back in the day used to think was that you had to go through this terrible courtroom battle in order to get divorced. Now, you don’t even need to see the inside of a courtroom in order to get divorced. There’s Collaborative Laws, there’s mediation. Mediation, most people know what that is, where you work with one person as a neutral and you try to come to a resolution. Collaborative Law is kind of that next step. If somebody says, I like mediation, but the idea that being alone with my spouse and not having an attorney in the room, there’s a power imbalance, I’m not comfortable with it, Collaborative Law is your next step where you work with collaboratively trained attorneys. But the catch to Collaborative is that if the process breaks down, it’s voluntary. So, if either party says, I don’t want to do it anymore, then you cannot use those same attorneys in litigation. You just start all over.
Negotiating prior to going to court and hoping that you settle before you go to court is what falls under the traditional umbrella of litigation. Even though it doesn’t necessarily mean you’re going to court, the option still remains. But with Collaborative, you have an agreement saying you’re not going to go to court, so that’s really where the difference lies. However, since it’s voluntary, let’s say I’m representing the husband and we’re getting along great, we think that everything is fine, but the wife says, I don’t want to do this Collaborative Law anymore, then I can no longer work with the husband. My entire firm is blocked out and they have to start all over if they go into litigation.
If you started a business before you get married, the way that it works is, and I’m talking specifically about New York but I imagine other states are very similar to that, let’s say the value of your business at the day of the marriage was a $1 million. You get married, you continue to work in your business and you continue to grow your business. Then at the time of a divorce, it’s worth $10 million. That $9 million of appreciation would all be considered marital. Ultimately, the way it’s going to be distributed could be a completely different thing. However, it is not as simple as that may sound.
Anyone who owns a business and has ever tried to sell a business or have a business valued in any way, they know it’s a very speculative valuation, because it’s very hard to get a business valuated. You’re always going to be in a situation where, for the purposes of a divorce, you’re going to want the value to be as low as possible as the business owner, because you’re obviously not going to want to give your spouse more money. The problem is, and I say this to all my business owner clients, once you have it valued and you have a low valuation, if you ever want to sell your business, one of the first things that a buyer is going to ask is, have you ever had this business valued. Then you have to hand over this valuation and basically say, “Well, in this situation, I was really low balling it because I wanted to not give my spouse money”, which is obviously not going to bode very well for any future negotiations with this new buyer.
We have had my clients spend tens to hundreds of thousands of dollars on business valuations because they are very complex, they’re speculative, and people can fight about them forever. You can just fight about so many different things; what’s working capital, what’s really hiding money in the business. It can go on and on and on. The other thing that’s another issue for business owners, and this is if you have a business before or after the marriage, is obviously a lot of people will run personal expenses through the business; legitimately or not. That becomes a whole another issue, and that can trickle into spousal support and child support and a lot. Businesses are really one of the trickiest spots of the divorce.
The other scenario is where you start the business after marriage. It depends on what state you live in as well. New York, for example, is an equitable state, not an equal state, so you’re not looking at a 50-50 split. Depending on what state you’re in, and this is what makes them even trickier, businesses are not usually split equally. All the other assets may be split equally, but businesses generally aren’t. In New York, for example, the highest percentages you’re seeing unless you’re in extraordinary circumstances are around 30%. One of the reasons that that makes it even more complex is, and as I was talking about working capital and people keeping money in their business, because if they keep money in a business and then that business is valued, then the non-entitled spouse will only get 30% at the very most of the value of the business. However, if that money came out and ultimately went into the bank account, then it would be a 50-50 split.
This becomes a big source of litigation, as to what is actually the proper income that should have been coming out, what income is staying in the business, what’s the definition of working capital because everybody has different definitions of it? I’ve had clients that all of a sudden decided it was really important to redo the offices, right before getting divorced. So therefore, obviously, they enhanced the value because they were able to spend a lot of the cash that was sitting in the business, and that’s something now that the spouse wouldn’t be including. People that buy artwork for businesses, is that considered a separate asset or is that a business asset? If it is a business asset, you’re getting 30% at the most. If it’s a separate asset, then you’re looking at 50-50. The fights can go on and on.
The big difference between starting the business before and starting it after is really going to be a question of the valuation. Because if you know you’d have to figure out what the valuation is at the date of marriage and you started beforehand, then you’re going to be dealing with the appreciation argument. If you started during the marriage, then there’s going to be no appreciation because it’s fully created during the marriage. However, I think that your percentage of what you’re going to receive is probably going to be higher if it was created during the marriage, versus if it was created before the marriage.
The involvement of the non-funding spouse does matter. So, part of when we’re figuring out what the proper percentage is, it’s all about contribution. I think there are different ways to value contribution. There could be the contribution of someone actually working in the business; that’s a direct contribution. There could be indirect contributions, such as making introductions, going to holiday parties; being a supportive spouse. And even if you had nothing to do with the business and did nothing supportive at all, then there still are the non-economic contributions, such as, let’s say this is somebody who was running the house. Because anyone who’s a business owner, more often than not, they’re working really hard and they’re working many hours, and it’s very hard to own your own business and there’s a lot of extra layers that go to it. So even just being a supportive spouse, and let’s say this is a traditional type of marriage where the spouse is home and raising the children, then that would be a non-economic contribution to the marriage, which would therefore trickle into contribution to the business.
I think one of the really important things for business owners and entrepreneurs to think about are prenuptial agreements. Very often people will say, “Oh, who needs a prenuptial agreement? Just because I have a lot of money, do I need one, or if my family has money etc.?” You may or may not need one, but when I have a client that is a business owner, I’m always going to say you should have a prenuptial agreement. I’m not say it’s going to be a fun conversation with your spouse. I do have conversations with my clients very often exactly because of this concern, and I have roleplay with my clients all the time about how to have this kind of conversation. They’re hard, they’re not fun conversations, but for exactly the reasons that I was just discussing, you don’t want to be in a situation where someone is going to value your business. Because it’s not just your valuation; the business owner is going to get valuation, and then the non-entitled spouse is going to get valuation, and then they’re going to probably have to get a third valuation battle about it. So, it’s just wasting money, and you could be litigating for years over the value of a business. That is definitely not what you want to do when you’re going into a marriage.
What some people will do very often is, when they have a business, they’ll say, “I’m going to keep the business, but I recognize that there’s some asset you’re walking away from, so I’ll give you what I call the ladder approach. If we’re married for X amount of years, you get X, if we’re married for Y amount of years, you get Y”, and you kind of go up the ladder. That’s what many people do if you’re ultimately going to be waiving all interest in a business. I really can’t emphasize enough, I know they’re unromantic and I know they’re difficult, but if you do not want to be spending hundreds of thousands of dollars paying legal bills and therapy bills, I really recommend that when you’re dealing with a business that is very complex, it is really important to basically have a prenuptial agreement that addresses how you’re going to handle that in the event of a divorce.
I talk a lot about this in the book about prenuptial agreements; the communication and all these things. I think that a well-handled prenup can actually strengthen the marriage rather than tear it apart. There is definitely people saying that that sounds unromantic, you’re planning for your divorce, etc. But at the end of the day, if you can have a prenup that is very respectful to each other and really can open the lines of communication and concern and things like that, I think that I’ve seen marriages become stronger because of the prenup process. I think it just has to be handled right.
I will say one of the things, and I do talk about this in the book and I think it’s important, is you need to be sure you want to get divorced. It’s one of the questions I ask clients right in the beginning, is that are you sure? Because if they hesitate for a moment, I say you should go and see a marriage counselor. You need to be sure because divorce is financially expensive, it’s emotionally expensive, and it’s very hard to turn back from. So, I think that people should be as informed as possible before making that kind of life decision.
To be a happy divorced couple, I think what it comes down to is, especially when there are children involved, you have to stay focused on the big picture. People get very quiet in the weeds, and they only see trees, no forest, and I think that it’s a big mistake. Emotions get out of control, and it’s very expensive, and it really just doesn’t get you anywhere. At the end of the day, there’s an element of this being a business decision and you need to be smart about it. So as much as you can put your emotions aside and focus on what needs to be done, and stay focused on your children and keeping them safe and happy, and stay focused on not spending money on attorneys and instead keeping it in your pocket, I think that’s going to make you happy. It comes down to keeping your kids out of your divorce. No kid should ever be seen as a divorced kid if people can handle themselves right.
The book could be bought on Amazon; “The New Rules of Divorce by Jacqueline Newman”. From a website, you can find me on “nycdivorcelawyer.com”.