Executive Divorce: When The Stakes Are High And The Tactics Low, Mediation Works Best 

 

One of the highest ever divorce settlement was made by Neil Diamond who paid his former wife £75 million. He famously commented that she had been “worth every penny”. However, many high-profile divorces are not settled as amicably and the ramifications of the acrimony between two spouses can have very serious consequences for those involved. 

 

Terminating a marriage today is more expensive than ever for high-ranking, highly paid businesspeople. The trauma of ending a relationship, being separated from your children and having to start a new life are only heightened by the complications of great wealth. This is particularly concerning in the corporate world, where companies are dragged into fierce and destructive combat when one of their senior executives ends a marriage.

 

Consider the case of US based Elon Musk, a South African born serial entrepreneur and CEO of Tesla Motors, whose successful Internet businesses made him an immensely wealthy man at a young age. In a very public divorce from his Canadian wife, author Justine Musk, with whom he has five children, Musk discovered the downside of celebrity status. His ex-wife blogged extensively about the divorce and his relationship with a young actress. Musk’s legal bills at the time of writing totalled $4 million and counting. The damage to his own reputation and that of his business has yet to be determined.

 

The bottom line is that the stakes are high and the tactics low. As a result, the process of divorce is becoming uglier than ever. “Despite the progress of women in South African business, the roles in this scenario remain familiar,” says Liza Segal, an advocate and expert in family law, co-founder of Ad Idem, a family and divorce settlement mediation company. “Because men generally still earn more than women and because more of them occupy senior positions in the corporate world, the person in the marriage who has made the big money is usually the husband, and the one fighting to get a share of it is the wife.”

 

Segal says that when their marriages draw to an end, executives face the prospect of handing their livid spouses large sums of money, equity stakes in their businesses and sensitive competitive information. To avoid such situations, company boards are being forced to think about the impact of divorce – once a strictly personal issue – on the company as a whole. 

 

“Executives are people, and no matter how much power they wield, nor how much they are worth, they suffer the same anxieties and unhappiness around divorce as the rest of us do,” says Deanne Kahn, an attorney and expert in family law, Segal’s business partner. “Divorce leaves people unable to focus, depressed, and worried about the future. Added to the emotional anxiety are the logistical and practical requirements which impede productivity in the workplace.”

 

Where executives are different, however, Kahn notes, is that their behaviour impacts shareholders, employees, suppliers – in fact, the entire sphere in which they operate. “When a CEO’s productivity falters, company value is impacted, making divorce an even more onerous event than it already is. Add to that the fact that executives hold high office; they occupy the moral high ground and are expected to behave as such. People look up to them and the way they are perceived affects the impression the public has of the company and its overall reputation.”

 

During a messy divorce allegations about a CEO’s behaviour will emerge. These can touch on anything from illicit affairs and sexual persuasion, to financial mismanagement, abuse of his wife and children, and even health issues. During divorce proceedings, this information becomes a matter of public record and the journalists love it. 

 

In hostile litigation, Segal says, there will be an incessant flow of applications and counter applications. Pleadings have to be filed and affidavits drafted. The result is that hundreds of working hours are lost. A ten-day trial typically requires 10 days of preparation, effectively keeping the executive out of his office for a month. However, an opposed, litigated divorce can continue for three to four years during which time both parties have to provide documentation such as cell phone bills, banks statements, credit card statements, and other documents that require an enormous amount of time and legwork to gather.

 

“Offshore banks accounts and trusts are commonly used to shield assets in the event of an adversarial divorce,” says Kahn. “The court will question the original intention behind the establishment of these accounts and/or trusts. An executive who disposes of all his assets in what he believes is a well thought-out strategy to deprive his wife of what she is entitled to, will be caught out and will be forced to account for the dissipated funds and, if applicable, to bring the funds back into the country, and to pay taxes and penalties.

 

Take Mrs Smith as an example. Mr Smith had a heart attack a year ago and Mrs Smith hired a personal trainer to help him regain his strength and improve his health. However, Mr Smith and his personal trainer have been having an affair. Mrs Smith is furious and wants a divorce. She remembers that Mr Smith told her, many years ago, that he set up a fund in Guernsey in which there is £500 000 so that she would never have to worry about her future. He also assured her that SARS would never be able to touch it. Now she is angry and frightened, and she has been pushed into a corner because Mr Smith denies the existence of any overseas funds and is claiming that he has amassed only a modest estate over the course of their 25-year marriage.  Mr Smith offers Mrs Smith a settlement which is a fraction of what Mrs Smith believes she is entitled to. Her next step is to go to the authorities and spill the beans on her husband’s activities. 

 

Following that, she may call the chairman of the board of the company headed up by Mr Smith. She will inform him that she knows Mr Smith is taking kickbacks from a service provider. She starts subpoenaing the company’s clients, suppliers, the payroll officer, and various other key employees throughout the company to build her case against Mr Smith. As a result, a number of employees/co-directors now have their productivity affected too. Meanwhile, the board is becoming increasingly frustrated with Mr Smith as they have no desire to be embroiled in his personal affairs or to incur the costs of engaging an independent attorney to safeguard the company’s interests.

 

“It’s a sadly typical situation,” says Segal. “That’s why the best way to deal with divorce is as quickly and effectively as possible. Litigation costs a fortune, and the longer the process is protracted, the worse the effects on those involved and the people around them.”

 

Divorce settlement mediation is a way for warring couples to work out the terms of their divorce, saving both parties significant time and money. It is without prejudice and it’s entirely confidential. In addition, and perhaps more importantly, those who choose mediation tend to experience far less stress during the process, translating to less of an impact on productivity.

 

“It’s the process of dissolving a marriage in a legally sound but non-litigious manner,” says Kahn. “Instead of appointing two separate attorneys to litigate the divorce, both spouses consult with a family law practitioner. The mediator helps them to reach a mutually acceptable resolution, in their own best interests and those of their family. The mediator, an expert in child and family law, provides guidance for the couple on the anticipated range of likely court outcomes.”

 

The benefits to all are enormous. If a divorce is litigated, the outcome is decided by a judge and the contents of the court file is a matter of public record. If it’s mediated, the conclusion is determined by the two spouses, both of whom have a financial and emotional interest in the ultimate success of the process. With the help of a mediator, the two will work together to design a legally enforceable agreement that makes the most sense for them.

 

This is the quickest route to follow, but it is also the most cost-effective and can save both parties the hundreds thousands of rands which go towards the often ruthless process of litigation in a divorce which involves high-value individuals.

 

“The advantages for the two people involved are indisputable, but the gains for business are just as great,” Segal points out. “By choosing the mediation route, high-ranking executives who are going through the end of a marriage are able to close the door on an unhappy episode and move on with their lives with as little disruption as possible, and with minimal damage to their reputation and that of the company.”

 

Segal and Kahn offer some valuable advice:

 

• Professionally, remember that you have a responsibility to all the stakeholders in

   your company, from board members to employees, and that your actions will impact

   them.

• Do not expose yourself to endless litigation which will impact your life on every

   level. Don’t let the dispute and the resulting acrimony spiral out of control.

   Instead, once you have agreed to divorce, take immediate action to bring the situation

   to a close. The longer you leave things, the more contentious the issues become.

• Be honest, be honourable and be fair, because if you attempt to squirrel money

   and assets away, you will be caught. 

• If there are children involved, remember that whatever you invest in the healthy

   termination of the relationship with your spouse will enable your children to heal

   and resume their lives. This can yield significant dividends down the line.

• You are allowed to be angry and resentful, but don’t allow your emotions to fuel

   irrationality and to cost you millions of Rands and hundreds of hours of your life.

   You will suffer both personally and professionally. As a businessperson, make a

   business decision. Your quest to save money now may well make it less possible for

   you to make money in the future.

 

 

Contacts:

Cher Heystek, Ad Idem, 011 268 2095, info@adidem.co.za

Usman Aly, Predictive Communications, 011 452 2923, usman@predictive.co.za