Tracy Stewart
Tracy Stewart
Avoid the Seven Business Casualties of Divorce
Here’s how.

June 16, 2011
by Tracy Stewart, CPA, PFS

Mack and Marie met while attending the University. He was an engineering major and she was a liberal arts major. They married soon after graduation and started a cement production company with a couple of college buddies. Mack brought in the jobs, his buddies ran the production and Marie was the bookkeeper.

Everything went along well for several years. They owned a $1.5 million house with the usual $1 million mortgage. They had few retirement accounts and $200,000 in the bank. Any extra money they had was plowed back into the company.

Loss of Control

Even though Marie was the bookkeeper, her title was chief financial officer. She had a salary befitting that title. Mack worked hard to build the business. He put in long hours and withstood a lot of stress.  Their relationship began to suffer. Mack was tipping the bottle. Marie talked Mack into joining Alcoholics Anonymous. That’s where he met Irene.

Irene was a great support for Mack. He appreciated her help and credited her as being a pivotal force in turning his life around. Unfortunately, Marie didn’t appreciate Irene nearly as much as Mack did. Marie suspected an affair and filed for divorce.

Word got around that Mack had a drinking problem. Marie’s attorney asked the judge to appoint a receiver to run the business. Mack’s partners were understandably furious. Unfortunately, the receiver did not have experience with this kind of company. Loss of control is the first casualty of divorce for this business.

Lack of Liquidity

While the receiver was charging high fees to do his job, there were other demands on cash-flow. Marie was still the bookkeeper, but was unable to concentrate on her job. The business developed problems with bank accounts, invoicing, accounts receivable; quick-paying customers became slow-paying customers. Money was disappearing. On the personal front, mounting legal bills for Mack and Marie were draining their bank account.  Lack of liquidity is the second casualty of divorce.

Revenues were dropping because competitors were snapping up the company’s long-term customers. Mack wasn’t focusing on customer relations. Competitors were talking with customers about Mack’s unfortunate reputation as a drinker and womanizer. Loss of business privacy, loss of focus and loss of reputation are casualties three, four and five.

Loss of Productivity

Divorces also cause loss of productivity (casualty number six) in a business, because of the need for the CFO and other employees to respond to requests for documents, instead of focusing on their jobs. In this case, Marie was the CFO. She had to deal with the divorce issues plus produce the documentation. Hints were made that she might wish to start looking for another position elsewhere. She had no intention of doing that.

According to Houston area family law attorney, Jerry Porter, when you have a family business in which both spouses are employed at the business and are facing a divorce, it “multiplies the complexity times five. You have emotional issues associated with job security and self-worth.”

Loss of Control

As the divorce dragged on, Mack was unable to attend conventions, customer meetings and board meetings. Instead, he had to attend court hearings and depositions. Loss of control of one’s schedule is the seventh casualty of divorce for a business owner.

Collaborative Law Process

There is a better way to steer a business through a divorce without demolishing it. It is called collaborative law divorce and it is business friendly. Mack and Marie could have retained control over their lives by having a business-like atmosphere of meetings and negotiations in which to solve their problems.

The collaborative process includes five key factors:

  1. Commitment to settle without going to court.
  2. Focus on the future and problem-solving instead of fighting over old injuries.
  3. Assurance that the spouse’s attorney will not use their words against them.
  4. Agreement to full disclosure of financial and other information.
  5. When valuation, tax or financial experts are needed, the CPAs are hired jointly.

In the collaborative process, business owners facing divorce usually remain in control of their businesses. If problems develop in the business, the couple can slow down the pace of the divorce in order to focus on the business issues. Personal liquidity can be preserved because, in my experience, collaborative cases are less expensive than litigated ones. Loss of privacy and resulting loss of reputation can be avoided because the collaborative process is private. There is no airing of the dirty laundry. Productivity at the business is maintained because collaborative law divorces generally do not include the long lists of requests for documents that we see in litigated cases. Documents are provided, but they are deliberately selected and far fewer than in litigation. Business owners keep control of their schedules in collaborative divorces because the parties have the power to set the collaborative team meetings at their convenience.


Couples with a business can divorce without destroying the company. The best way to avoid the seven business casualties of divorce is to opt for the collaborative law process.

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Tracy B. Stewart, CPA, PFS, CFP, CDFA specializes in family law litigation support in Houston, Texas. She helps clients protect their wealth during property settlement negotiations. She is a member of the AICPA Personal Financial Planning and the Forensic and Valuation Services sections. Stewart is a board trustee for the Collaborative Law Institute of Texas as well as on the Executive Board of Texas Society of CPAs. You can contact her through www.texasdivorcecpa.com.

* The AICPA’s Personal Financial Planning Section is the premier provider of information, tools, advocacy and guidance for CPAs who specialize in providing estate, tax, retirement, risk management and investment planning advice to individuals and closely held entities. The Personal Financial Planning Section is open to all Regular Members, Associate Members and Non-CPA Section Associate Members of the AICPA. If you are a CPA who wants to demonstrate your expertise in this subject matter, become a Personal Financial Specialist Credential holder. Visit www.aicpa.org/PFP to learn more.