private company splitting ownership

[rstemen]

What is the name of your state? Ohio
My husband started a company with three other individuals during the course of our marriage. His 30% share is in his name.
He has claimed that the company has no value, but he has been working full time for 3 years to develop it.
I would like to claim 1/2 of his portion, or 15% of the company.
I've been advised that this is not possible because the company is not worth anythin now, and I would be making a claim on future gains.
this does not sound correct to me.
Advise?What is the name of your state?

 

[Ohiogal]

What kind of company is it? Is it making profits? How long have you been married?
What you were told very well could be right.

 

[nextwife]

Just because HE is working in it does not mean it has marketable "value" to anyone else. After salaries, there may be no profit to dispense.
Some businesses are worth nothing without the principals.

Also, the operating agreement of the company may PROHIBIT any principal from transferring all or part of their interest in the company without the agreement of the OTHER principals who would then become the new owner's business partner. They may have a say in who they are partner's with.

He has 30%, does he DO 30% of the work? If you got 15%, would you then do 15% of the company's work, or half hubby's work?

 

[BelizeBreeze]

What is the name of your state? Ohio
My husband started a company with three other individuals during the course of our marriage. His 30% share is in his name.
He has claimed that the company has no value, but he has been working full time for 3 years to develop it.
I would like to claim 1/2 of his portion, or 15% of the company.
I've been advised that this is not possible because the company is not worth anythin now, and I would be making a claim on future gains.
this does not sound correct to me.
Advise?What is the name of your state?

Forst of all, unless the partners have unequal shares, your math is off.

And second, that is entirely correct. If you take 50% buyout of his shares you would receive 15% of ownership at this point in time. If the company has debt, you would be assuming that debt to the tune of 15%. So, if the company has a revolving $1,000,000 startup debt, you get to pay $150,000.

But you cannot make a claim on the future profits of a company as if this were a stock ownership issue. Either take the chance of receiving $0 or less (as in debt) or realize it's not worth the effort.

 

[rstemen]

Thanks for all of the advise. I acknowlege that with a part ownership of the company I would aquire that percentage of debts as well as assets. As for the amount of work, my husband collects a salary from the company to compensate for his work there. No, I do not intend to become an employee.
On paper, he can show the value of the company at 0. Trust me, he would have moved on long ago it there was no potential. There are other partners that are not employed, but do own a percentage of the stock. Oh, I believe the company is a LLC.
Please realize, this is not a small potatoes company, one of the partners is a major celebrity who wouldn't fool around with something small. I am short on money, and this divorce is near settlement after a long, drawn out battle. My husband is the type to screw me over royally, and I have had the same lawyer fot the entire time.
Please ask if there is any further relevent information AI can provide. Thanks

 

[nextwife]

Thanks for all of the advise. I acknowlege that with a part ownership of the company I would aquire that percentage of debts as well as assets. As for the amount of work, my husband collects a salary from the company to compensate for his work there. No, I do not intend to become an employee.
On paper, he can show the value of the company at 0. Trust me, he would have moved on long ago it there was no potential. There are other partners that are not employed, but do own a percentage of the stock. Oh, I believe the company is a LLC.
Please realize, this is not a small potatoes company, one of the partners is a major celebrity who wouldn't fool around with something small. I am short on money, and this divorce is near settlement after a long, drawn out battle. My husband is the type to screw me over royally, and I have had the same lawyer fot the entire time.
Please ask if there is any further relevent information AI can provide. Thanks

If there are other partners NOT working in the company, are they not in some other way contributing something of value to the company? Cash infusion? Name value? Expertise? Customer base?

Indeed the company may have a saleable value some day. May not. Celeb backed companies tank every day. If it someday tanks, do you want to share that as well? Or do you want to share what it is TODAY?

If hubby's company were being marketed on the open market, does it really have a cash value that would make it worthwhile for someone to BUY it? That is what you should research. If it has no dollar value, then there may be nothing, at this time, to share but debt.

 

[rstemen]

Thanks,
I would share the value of the company as it proceeds.
I would take a cash value today, but I don't feel I can easily get that analysed, especially from my husband.
One of the other owners did recieve his ownership by agreeing to the use of his name, another helped with start-up as did my husband. Note, I was supporting my family while my husband was earning his share of the company.
Did that answer your questions?

 

[tranquility]

When he said the "value" of the company was zero, did you offer him 30% of $0 for his share?

 

[LdiJ]

It would really be helpful to know what kind of business it is and how it is set up.

Realistically, a court cannot give you any ownership in a privately held company where he is a minority stockholder....and, quite frankly if its an S-corp or a partnership you truly don't want a forced ownership interest. You would be liable for income taxes on a pass through share of the business profits, when the business may not actually distribute those profits.

The best that a court can do is give you half of his share of the equity in the business (a cash payment from him to you or a credit against other marital assets) as of now.

However, in order to do that it has to be proven that the business has a value....that he has actual equity in the business. He may be lying that the business has no value, or he may be telling the truth, but it could be expensive to find out. You would need to hire a forensic accountant and that isn't cheap.

Now, if you can demonstrate that you have a marital investment in the business because you supported the family for X amount of time so that he could start making money, you might have a potential claim for a temporary period of alimony....to allow you to get education to further your job skills or to allow you a period of time to try to start a business of your own.

Or, if you can demonstrate that marital assets were invested into the business you may also have a claim for a share of those marital assets.

However, you NEED an attorney. None of this is a DYI project, and depending on the nature of the business and its set up....it may not be worth pursuing at all.

 

[rstemen]

Thank you. I think you've answered my questions, and unfortunately it's not what I wanted to hear.
I gave a condensed version initially, but to answer some of your questions:
The business has 4 partners, he is the largest shareholder with a 26% share. He is the operating president of the company. Yes, while the company was starting out, I supported the family. I am a professional working woman, masters degree, capable of supporting myself and my son.
He keeps the finances, but I will say, our house (he is keeping it) is values at $430,000, he is a member of a country club, $30,000 initiation fee, $10,000 yearly, drives a $45,000 car. He originally claimed to be making $35,000 per year, but backed that to $100,000I am getting screwed, I know, but I am trying to keep our daughter out of this (he makes custody threats). I just thought it would be simpler, rather than arguing about the company value, to get 13% ownership. It is a viable company, obviously.
The company is an apparel company with a celebrity nametag.
I do not have much cash, and I fear I will not end up with much. My lawyer advised that I will probably not get the value because, like you said, it would be too hard to prove.
If I got an indication here that I may be able to get the 13%, I would find another lawyer for a second opinion. I believe the company is set up as a limited liability company, and I have not seen anything in the documents restricting the transfer of company shares.

 

[LdiJ]

Thank you. I think you've answered my questions, and unfortunately it's not what I wanted to hear.
I gave a condensed version initially, but to answer some of your questions:
The business has 4 partners, he is the largest shareholder with a 26% share. He is the operating president of the company. Yes, while the company was starting out, I supported the family. I am a professional working woman, masters degree, capable of supporting myself and my son.
He keeps the finances, but I will say, our house (he is keeping it) is values at $430,000, he is a member of a country club, $30,000 initiation fee, $10,000 yearly, drives a $45,000 car. He originally claimed to be making $35,000 per year, but backed that to $100,000I am getting screwed, I know, but I am trying to keep our daughter out of this (he makes custody threats). I just thought it would be simpler, rather than arguing about the company value, to get 13% ownership. It is a viable company, obviously.
The company is an apparel company with a celebrity nametag.
I do not have much cash, and I fear I will not end up with much. My lawyer advised that I will probably not get the value because, like you said, it would be too hard to prove.
If I got an indication here that I may be able to get the 13%, I would find another lawyer for a second opinion. I believe the company is set up as a limited liability company, and I have not seen anything in the documents restricting the transfer of company shares.

An LLC can choose to be taxed as a C-corp, an S-corp or a Partnership. Therefore knowing that its an LLC doesn't help.

Do you file joint tax returns? Does he have a K-1 that is reported on the returns as part of his income from the company? If so, you DO NOT want a share in the company. Why?, because you would be required to pay tax on 13% of the profits of the company, even if the company distributes no cash to the shareholders. Your husband and his partners could take a healthy salary for themselves, retain the rest of the profits and cause you to pay tax on money that you will never see. I have several clients in that position right now. Most of them eventually end up selling their shares back to the other shareholders for pennies on the dollar, just to get rid of the tax obligation.

Even if its taxed as a C-corp, they can still manipulate things so that you don't see a penny of profit, even if you don't get stuck with a tax bite.

However, you are certainly entitled to a proper share of the rest of the marital assets, which include 1/2 of the equity in the home, bank accounts, brokerage accounts, retirement accounts etc, as well as being responsible for 1/2 of the marital debt. Don't allow yourself to be conned out of your fair share of the rest.

Also, discuss with your attorney the possibility of you receiving some short term alimony to recoup your marital investment in the business. That may not be a realistic possibility, but discuss it.

Don't allow him to bully you over the marital property settlement with custody threats....or if you do, then accept that and move on with life.

However, at least subpeona the corporate tax return as well as your husband's (if you don't file a joint return) before making any decisions. If there is any "book cooking" going on, your husband's partners may put some serious pressure on him to settle with you.

 

[rstemen]

Thanks, you have been very helpful!