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CEO Divorce: What’s in It for The Shareholders?

Clarkston Legal Nov. 3, 2013

By: Timothy P. Flynn

There is no doubt that a divorce proceeding affects any professional’s work routine; that includes, of course, corporate executives. The distraction of a divorce in the board room, however, affects others outside the company; it pulls the corporate shareholders within its scope.

We’re not just talking about guys like Mad Men’s Don Draper, whose divorce temporarily but significantly affected the partners of a successful NYC advertising agency. A CEO’s divorce can affect the bottom-line for the shareholders in the company.

There are several ways that an executive’s divorce could affect the company for which he or she manages. First, if the executive has a significant stake in the company, the divorce could affect the executive’s controlling interest. The divorcing spouse will want a portion of the value owned by the executive and that value could affect control of the company.

Second, the divorcing executive’s corporate focus and energy levels will be impacted by the trajectory of his or her divorce proceeding. It is no surprise that business studies and surveys have shown that well over one-third of companies report a negative productivity impact directly arising from the divorce of an executive.

Third, the divorcing executive’s strategic decision making can be influenced by the divorce proceeding. If, for example, the executive is funding her divorce settlement with personal assets so that she can retain her share of corporate ownership, her outlook toward risk could be impacted: i.e. she may become more risk-adverse in the short term in order to protect her suddenly less-diversified and more concentrated net worth. Being less risk-adverse may not be good for the company or its shareholders.

All of this affects a shareholder’s interest in the company. In many cases, perhaps because of the above examples, corporate divorces are handled as privately as possible.

The collaborative model we prefer here at Clarkston Legal serves the executive, and thus her company, very well. The collaborative model is where the divorcing parties, and their team of professionals, meet and negotiate a settlement before a divorce proceeding is officially filed with the family court.

If you or your spouse are considering a divorce and there are corporate implications, you should give serious consideration to the collaborative model. To learn more, contact us for a free consultation.