Jan L. Warner & Jan Collins
Question: When I first married 25 years ago, my parents invested $25,000 in a business my husband started in order to keep us from going into debt. My husband agreed in writing to issue 25 percent of the stock to my parents and told them -- and me -- that the stock was in the safety deposit box. Because he was taking care of me and my children and because they trusted him, my parents never asked that their stock be delivered to them.
Over the years, as the business grew and my husband raised money from different investors who became stockholders in the company, our lifestyle increased significantly. When my husband moved out of our home and into an apartment with his secretary and I sought legal advice, I found out for the first time that he owned 55 percent of the stock, other investors owned 45 percent among them, and my parents are shown as owning nothing. Now that my lawyer is preparing to bring a divorce suit on my behalf, should I make a claim for my parents' interest or should they make their own claim?
Answer: Although parents and relatives often make investments, loans, contributions, or gifts which allow young couples to go into business without bank debt, unfortunately, because of the family relationships involved, most do not protect their investments or loans. Your folks are a prime example.
Generally speaking, family courts have the authority to allow third persons to become parties to marital litigation in order to allow a complete adjudication of all issues and to avoid multiplicity of suits to accomplish the same end results.
Assuming your parents have a written commitment by your husband that 25 percent of the stock would be issued to them, we believe that your husband has some serious problems, not the least of which being that he sold securities to others without disclosing the ownership interest of your parents.
And assuming your parents can prove their entitlement to 25 percent of the initial stock, they just may have significant ownership in the company as it is currently structured. Since the more they prove they own, the less there is to divide between you and your husband, your parents' interests are technically adverse to yours. However, since they are "friendly adversaries," in the long run, your interest in the company may be more than had you and your husband divided 55 percent.
Under these circumstances, we believe that (1) your attorney should consider making your parents parties to the lawsuit in order to make sure that all issues are tried together; and (2) your parents should retain their own lawyer to represent their interests. As the valuation and corporate issues involved will be rather complex, a certified public accountant, a securities lawyer, and a corporate attorney are probably "musts."
IGNORING TAX CONSEQUENCES. Divorce can generate all kinds of tax consequences -- income, estate, and gift. Many of these are "hidden" and ignored until it's too late. For example, the major assets in a marriage are generally the home and a pension. Both are tax booby-trapped. It's not unusual to see a home worth $150,000 having a $50,000 tax basis. And that can mean a hidden tax liability to the unwary spouse who gets the house, sells it, and then has to divide the equity. If the house is titled on one spouse's name and is going to be sold, maybe it's a good idea for one to transfer a one-half interest to the other before the sale so both will treated equally. And if there's a chance that past tax returns omitted income or overstated deductions, indemnification in a settlement agreement is a necessity. To avoid getting stuck with taxes on income you know nothing about, you may not want to file a joint tax return after the date of separation.