Still, entrepreneurs are dead right in being wary of divorce, particularly if theirs is among the estimated 3% to 5% of all filings that escalate to the level of litigation. The sheer cost of the ordeal, both emotional and financial, can be crippling to the company and its chief executive officer alike. Entrepreneurial decision making is impaired, and strategic planning is hamstrung for the duration of the proceedings. Partnerships are strained by the pressure of document-production subpoenas and depositions.
And that's not the worst of it.
If the case becomes such a pitched battle that word of the divorce leaks out into the industry grapevine or the newspapers, the company may begin to appear unstable to customers, lenders, and investors.More than a few divorce spats have been known to spawn spin-off lawsuits and even criminal prosecution. But the saddest stories are those of entrepreneurs who sabotage everything they have worked for by letting their egos -- and their deeply ingrained need to control not only their companies, but the divorce itself -- prevent them from doing what's best for business.
In Chicago, for example, there is a pending divorce case that may kill not one, but two companies, and perhaps send some people to prison before the final decree is issued. Norman Karel's $8.5-million printing company accounted for more than 80% of Joan Karel's million-dollar courier business -- that is, until their divorce heated up and he took his shipping elsewhere. She had begun subpoenaing his company's customers, in a move that he says cost him a large percentage of his business. Throughout the case, there have been allegations and counterallegations of spying. There has been violence, both actual and threatened. Eventually, the clamor caught the attention of the FBI, which stepped in -- complete with confidential informants wearing concealed microphones -- to investigate allegations that Norman Karel's company was paying kickbacks on several large printing contracts. His company, Earl Lee Co., was sold last fall; hers, Evergreen Air Express Co., is floundering; and their former customers and business associates are reading all about it in Crain's Chicago Business. Three years after the first petition was filed, neither side seems inclined to settle.
ENTREPRENEURIAL divorce statistics are hard to come by, but it's only half in jest that some company founders say they build longer and stronger relationships with their accountants -- or with their divorce lawyers -- than with their spouses. To many, marital discord is just another occupational hazard. If the physical and financial drain of getting a new company into the black doesn't cause problems at home, the strain of keeping it there will.
"Everybody's been through it at least once," signs a California manufacturer who has been granted his divorce, but has been haggling for two years over a property settlement that will make it all final. "I had lunch recently with four guys, and we counted 11 marriages around the table."
At one time, the conversation in such a group would have been jokingly fraternal, one trying to top another with tales of private-eye spying and alimony demands. Now the talk is technical, and deadly serious -- all about business valuators, restrictive stock agreements, and cryptic references to "damage control," a euphemism for hiding money from one's spouse. To entrepreneurs, divorce has become "just plain had for business," explains the founder of an investment banking firm who has been through the ordeal. "Worse than seeing your market dry up, worse than having your bank call in your loans, even worse than losing most of your key employees."
On some level, the typical business owner lives for the challenge of periodic business traumas. But this one is different. In a divorce, the entrepreneur is forced to stand by, frustrated, as a series of paid gladiators fight over the company's fate. Divorce lawyers (who call themselves matrimonial attorneys with the same logic that allows President Reagan to call MX missiles Peacekeepers) demand volumes' worth of documents and days of negotiation or deposition time. Business valuators -- one for each side -- paw through closely guarded business records, investments, and perks with as much glee as if they were dumping underwear drawers on the sidewalk. To some extent, the entrepreneur's greatest fear is already realized: the business is no longer completely under his or her control.
"An then some judge, whose knowledge of business probably stops at how to balance a checkbook, is going to tell me how much my company is worth?" The California manufacturer's voice quavers with a combination of anger and anxiety. By placing a value on his company, one that may differ from his own, the court is substituting its judgment on how to run a business for his.
"If the guy looks at an offer I got in 1984, when I was thinking of selling the company, he'll see somebody was willing to pay $1 million. But that included a noncompete for me, and I had no intention of retiring. I say the business is worth $600,000 today. If the judge goes with the million-dollar figure, though, I'll owe my wife $500,000, not $300,000." For him, there's more than the principle at stake. "Not only do I not have that amount of money, I can't sell for that amount, and the company can't carry that amount in debt.You see why I'm a little worried?"
The subjective nature of the valuation process is what makes it so fearsome to entrepreneurs facing divorce. Unlike larger, publicly traded companies, which can be valued with little more than a calculator and the stock tables from the local newspaper, there are no handy benchmarks for appraising small, individualized businesses. Those who have thought ahead rely on pre- and postnuptial agreements, or such estate-planning devices as restrictive stock-transfer agreements. But the entrepreneur who has knuckled down to such a degree of planning is an anomaly -- and in the opinion of some, probably too fastidious to have a spouse to divorce.
