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Business Divorce

Posted September 27, 2019

We’re starting a new series of blogs today. Something a bit different but, we hope, a lot more instructive (and interesting) than pieces about Colorado law or the intricacies of alimony calculations.

Our first post is about a business . . .

This happened about three years ago in a town in New England. A typical mill town, there’s many all over New England wherever there’s a good sized, decent moving river. Once booming, it was all downhill from the 1920s – the advent of air-conditioning and rise of cheap labor in the South quickly stripped away businesses that had been thriving since the Civil War. The final nails in the manufacturing coffin were the Great New England Hurricane of 1938 and a catastrophic flood in the mid-1950s.

By the 1970s this town was particularly hard hit and its downtown was mostly boarded up. There were no jobs and it’s too far from a city to commute for work. This was a town destined to be abandoned like an old gold rush town.

Then two brothers came along. In 1971 they bought a long track of property on one side of the river. They knocked down the ruins that were there and built a modern, 110,000 square foot wire manufacturing plant.

The business took off and quickly became the largest employer in the area since the Depression. Main Street woke up too, restaurants, bars, a movie theater, stores – even some chains – moved in.

The brothers expanded in 1988. This time the town gave them property on the opposite bank of the river and the brothers built a sister plant. The town voluntarily floated tax abatements, widened the roads for them, did everything they could to ensure the brothers were comfortable and unimpeded by bureaucracy.

The company flourished and the town came back. There were improvements, some of the old Victorians homes were restored, a state-of-the-art community college opened, old mills were turned into stores and condominiums.

By 2010 or so, it looked like another expansion was in order, the brothers hired consultants to look for properties, held talks with the town, settled on a plant design, began training a new generation of employees.

Then, one of the brothers showed up late for work one day in early 2016. He had never been late before. When he finally wandered in around noon, he went straight to his brother’s office and told him he was done. Over. Wanted out. Now.

He had had it. He demanded to be bought out for the exact amount, down to the penny, of what half the business, property, contracts, company trucks and cars, goodwill were worth. He said his attorney would be in contact and he walked out. .

And that was it. No warning, no explanation, just a demand for his half of the business. In cash.

Halligan, LLC is a family law firm. We see this and variations of it on a weekly basis. Disregard the fact that this happened between two brothers and it’s a perfect snapshot of a divorce where there’s a business involved.

The spouses don’t have to be partners like the brothers in New England (though many are), the issues in divorce are the same: valuing the business, equitably ‘dividing it’ (remember, in Colorado equitable doesn’t mean exactly even) while trying to keep it a going concern.

None of this is easy. In our example, how do you value the ‘goodwill’ the company built over the years? As in any divorce, other people are directly affected. In this case it’s the employees and, really, quite possibly everyone in town. How do you balance fairly paying off the brother with not shutting down a plant or laying off employees?

There are no easy answers, there are no easy calculations.

When a business is part of a divorce it takes an already complicated personal situation and adds layers of financial complexity. Halligan, LLC has the business acumen to handle the financial end and the experience and empathy to get our clients through it to a new beginning.

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