Monthly Archives: September 2017

I’m Divorced, Now What?
Things To Do After Your Divorce Settlement

iuDon’t Forget to Follow up with
These Important, but Often
Overlooked Action Items

The divorce papers are signed, it should be over, right? If only it were that easy. All of the legal work may have been completed, but there still may be many financial hurdles to overcome. Now that everything has been split up, it is imperative to make sure that all of the “housekeeping” is completed. There are many action items specified in the divorce documents, and you must remember to follow through to make sure that the divorce plan works the way it’s intended to.
You don’t want your ex-spouse to have access to anything unintentionally. You may have been given control of a joint account and it feels like everything is status quo. However, until you legally change the title of the account, it is still legally joint property. All joint credit cards should be closed prior to the final divorce, although payments may still be required by one party. If your name is still on a joint credit card, that requires ongoing payment after the divorce, your credit may be affected if your ex-spouse stops paying the bill. You should check your credit score often to make sure nothing is affecting your credit rating.

Did you remember to retitle the car and change the insurance policy? Did you redraft your will? Did you follow up on the QDRO? Did you refinance your mortgage as required, or get your name off of debt associated with a property you no longer own? Did you change club or gym memberships? Did you change the beneficiaries (or titling) of your bank accounts, investment accounts, retirement accounts (including IRA’s), annuities, life insurance, health savings accounts, general powers of attorney (also for health care proxies and living wills), and trusts.

Beneficiary designations overrule all, so they must be changed. Some changes will require additional legal expense to amend, but they are important enough to warrant immediate attention, especially if there are minor children involved.

Don’t procrastinate, it doesn’t get easier and you only stand to lose what you fought hard to get.

Tracy Badgley, CPA, CDFA, CGMA

 

Shareholders’ Agreements
Personal Business Risk

Minority-ShareholderOne very controllable shareholder business risk may be easily and respectfully addressed by the preparation of a thoughtful shareholder buy-sell agreement.

The agreement should identify and establish a solution by disclosing and addressing concerned risks, including asset transfer issues, pricing and financing.

One major issue often resulting in disputes is the flawed approach to the business transfer price, how that value was determined and who do the shareholders rely upon to determine the value. I have encountered, especially in older agreements, the following approaches used to determine business value for non-real estate companies:

  • Net book value –Archaic and usually results in below market value
  • Fair Value – Present value of the risk adjusted rate of return on investment, further adjusted by illiquidity risk
  • Fair Market Value –  Same as Fair Value but further reduced by lack of control pursuant to minority interests
  • Rule of Thumb Formulas – Market multiples of sales, gross profits, and/or EBITDA based on market transactions  of comparable businesses
  • Capital Account Formulas

Absolute clarity and fairness consensus is required to appropriately address the business risk, plans for the business to finance, remove threats of misunderstandings which result in litigation. Valuation theory and methodologies may become dated or outdated and subject to differing interpretations, resulting in expensive and acrimonious litigation if left unresolved.

However, before making decisions, shareholders need to understand the triggering factors, valuation approaches discussed and the potential impact on valuations. Results, depending on approach selected, may yield either an over or undervaluation. In addition, if the approach selected is not periodically updated for economic and financial relevance, value may be irrelevant.

All agreements will have trigger factors, which are the risk events identified causing the agreement to guide on the value transfer. Such trigger events include death, disability, substance abuse, voluntary and involuntary termination, failure to agree on substantial business decisions and other factors. There is no way to predict when the factors will materialize, so preparation and consideration in the agreement is essential.

Understanding and considering other risk factors should be addressed:

  • Shareholder marital problems and divorce since business ownership may be marital property
  • Ability to be productive :physical, emotional, mental  and other disabilities
  • Family and children
  • Financing and ability to pay
  • Non competes

Shareholders need to consult with experienced professionals to design a plan and agreement which deals with the risks associated by the triggering factors identified above and how to deal with these factors.

Dennis B. Kremer, CPA/ABV/CFF/CGMA, CVA, CFE
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