Episode Description - How to Protect Your Business in a Divorce
When a business is on the line in a divorce, the financial stakes can be staggering - and most people don't realize how much they don't know. Whether you’re a business owner trying to protect your business in divorce, or a non-owner trying to value your spouse’s business, understanding the rules of business valuation is critical.
Nicole Sodoma, a nationally recognized family law attorney and founder of one of the largest family law firms in the Carolinas, breaks down how business valuation works in divorce proceedings and why both spouses are often operating with blind spots that can cost them dearly.
From the quiet strategies used to undervalue a business to the surprising ways lifestyle clues can tell a truer financial story than a tax return, there's far more to uncovering what a business is actually worth than most people expect.
As a business owner who has navigated divorce herself, Nicole understands and explains how business owners often minimize what their company is worth, while the non-owner spouse may have no idea what questions to ask or what information to look for to dispute that value.
Nicole also explores the emotionally exhausting stretch between separation and final divorce, especially for entrepreneurs and business owners who are trying to keep a company running while their personal life is unraveling. She highlights the “divorce fog” that can cloud judgment, the risks of making decisions too fast, and the importance of building a strong team before problems spiral.
If you or someone you know owns a business and is going through a divorce, this podcast episode can make the difference between navigating through it with financial stability versus allowing your divorce to drive you to the edge of a financial cliff.
Show Notes
About Nicole
Nicole Sodoma is a nationally recognized family law attorney, author and thought leader redefining divorce, co-parenting and modern family dynamics. She is the founder and managing principal of Sodoma Law, the largest family law firm in North and South Carolina. A former litigator, certified parenting coordinator and collaborative law attorney, Nicole draws on her own lived experience as a step-parent, mother, ex-wife and entrepreneur to provide personalized strategies and tools for families navigating complex transitions. She is the author of Please Don’t Say You’re Sorry, which helps readers navigate the challenges of marriage and divorce with insight, humor and practical tools to move forward. Nicole is also the founder of the Sodoma Law Foundation, and sought-after source on all things divorce and family, having been featured in outlets including The Wall Street Journal, USA Today and Business Insider.
Connect with Nicole
You can connect with Nicole on LinkedIn at Sodoma Law and on Facebook at Sodoma Law. You can follow Nicole on YouTube at Sodoma Law and on Instagram at The Sodoma Way. To learn more about working with Nicole, visit her website at Sodoma Law.
Key Takeaways From This Episode with Nicole
- Nicole Sodoma is a nationally recognized family law attorney, author of Please Don't Say You're Sorry, and the founder of Sodoma Law, the largest family law firm in the Carolinas. She leverages her extensive experience as a litigator and her own lived experience as an entrepreneur and ex-wife to help families navigate complex transitions.
- The discussion highlights how a personal experience with divorce can fundamentally shift a lawyer’s professional perspective, leading to a deeper understanding of the emotional and logistical hurdles clients face.
- Nicole explains that for business owners, divorce is a major disruptor that requires proactive transparency and a realistic look at how a company’s value might be impacted.
- Strategically undervaluing assets like a business or a primary residence is a common tactic during a split, making it vital for both parties to understand the nuances of fair market value.
- Expert analysis is often required to identify "yellow flags" in business finances, such as personal expenses being run through the company or shareholder loans that reduce apparent value.
- Shareholder agreements regarding business valuation in the event of a divorce may not always be binding in family court, depending on the timing of the agreement and the specific jurisdiction.
- When facing a judge who lacks a deep business background, parties may benefit from using a mediator or an arbitrator to reach a more informed and specialized resolution.
- The "battle of the experts" occurs when opposing valuation reports vary by millions of dollars, requiring a legal team that can meticulously redline evidence and prioritize the client's long-term sanity over endless litigation.
- Non-owning spouses are encouraged to look beyond tax returns and examine lifestyle and credit card spending to determine if a costly formal business valuation is truly necessary.
- Navigating the "space between" separation and a final agreement requires a dedicated "circle of trust," regular financial check-ins, and emotional support to survive the period known as the divorce fog.
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Transcript
How to Protect Your Business in a Divorce
SUMMARY KEYWORDS
divorce strategy, family law, business valuation
SPEAKERS
Karen Covy, Nicole Sodoma
Karen Covy 0:10
Hello, and welcome to Off the Fence, a podcast where we deconstruct difficult decision making so we can discover what keeps us stuck, and more importantly, how we can get unstuck and start making even tough decisions with confidence. I'm your host, Karen Covy, a former divorced lawyer, mediator, and arbitrator, turned coach, author, and entrepreneur. And now without further ado, let's get on with the show.
With me today, I have the pleasure of speaking with Nicole Sodoma. And Nicole is a nationally recognized family law attorney, author, and thought leader redefining divorce, co-parenting, and modern family dynamics. She's the founder and managing principal of Sodoma Law, the largest family law firm in North and South Carolina. A former litigator, certified parenting coordinator, and collaborative law attorney, Nicole draws on her own lived experience as a stepparent, mother, ex-wife, and entrepreneur to provide personalized strategies and tools for families navigating complex transitions. She's also the author of Please Don't Say You're Sorry, which helps readers navigate the challenges of marriage and divorce with insight, humor, and practical tools to move forward. Nicole is also the founder of the Sodoma Law Foundation and is a sought-after source on all things divorce and family, having been featured in outlets including the Wall Street Journal, USA Today, and Business Insider. Nicole, welcome to the show.
Nicole Sodoma 1:41
Thanks, Karen. It's always weird hearing about yourself, you know? Like, who are they talking about? I don't even know who that is.
Karen Covy 1:48
I know, but it's okay because I said it about you. I think the the worst is when someone says, okay, tell me about yourself, right?
Nicole Sodoma 1:56
And you're like, uh mom, lawyer, you know, that's it. Mom, lawyer, wife. I don't know. I wear a lot of hats, not always in the same order.
Karen Covy 2:07
Well, I'm glad then that I'm the one that got to introduce you because you were so much more than just that. Um, you've done so many things, and you're still doing a lot of things. You're just rocking the world of divorce and family law. And I so appreciate your being here.
Nicole Sodoma 2:23
I still do wake up every single day uh proud and happy that this was the area of law I selected almost 26 years ago.
Karen Covy 2:33
Yeah. That's awesome.
Nicole Sodoma 2:34
It's still treating me well, and I'm still loving it. And that's so important, you know, when you decide what area of law you want to practice. This is um family law has got a pretty solid burnout rate. So to still love it makes me very happy.
Karen Covy 2:49
Yeah, that's true. It really does. I think somewhere mid-career, most people they're done. They just emotionally check out or they really check out and they're like, I can't do this anymore, and they move on. But what I'd like to start actually with a question that that I hate, and it's like, tell me about yourself, but a little deeper. It's like, what drew you to family law in from the very start? Start wherever you want to start.
Nicole Sodoma 3:15
You know, it's funny when uh a candidate lawyer applies at our practice. I always tell our recruiter that if they start with, my parents were divorced and that makes me a good candidate, I tell the recruiter to probably pass on that person because our parents being divorced does not make us particularly unique. Uh, but that is where I started to learn about blended families. And it I think what was unique for me was that it was so normalized when I was growing up, and I did live an interesting childhood now, but I didn't know it until I was well into my 30s. And uh, so I had been already, you know, I picked family law. I knew I wanted to practice family law. But when I was in law school, you know, when you go to law school, they tell you you're gonna end with a JD. Um, and there's not really there are only a couple of things you can specialize in when you come out of law school. Family law is not one of them. So um I actually thought I was going to be a sports and entertainment lawyer. I had big plans of negotiating, you know, uh sports contracts between agents and I don't know. I loved that area of the law. I love First Amendment stuff. But um, when uh when I started out, that's not what happened. And I I hate the adage, you know, it all happens the way it's supposed to happen, or you know, things that are will be, will be. But um I uh ended up picking my first job in a business practice where a lot of the skills that I ended up using once I opened the law firm, gosh, eight years later, I learned early on in that business practice. So I was a business attorney for the first couple of years and then um found my way into family law. And um, but I knew that's where I was supposed to be from the beginning. That's where my heart was. That's what I understood the most. And um, you know, business transaction work is exciting for some, but for me, it was hard to tell that I was really making a difference, as um cliche as that may sound.
Karen Covy 5:28
No, not at all. And I know that through the course of your journey, you also went through your own divorce, um, which inform I always find this fascinating to get a divorce lawyer's perspective when they, you know, how did your divorce or did it change the way you see divorce and the way you practice in divorce?
Nicole Sodoma 5:48
It was a complete, uh, I did a complete 180. Uh the reality was is when I got divorced, uh the I learned that there were all these things that my clients weren't telling me, and there were all these things that I think I would have been telling my clients. You know, they're, you know, clients sit down with you and they bring to you what they think you want to know. They leave out a lot of the hard stuff, right? The hard stuff that they're experiencing. You see your clients' weight shift, you see um, you know, tears turn dry up, you or maybe the reverse. Um, you're constantly talking strategy. And over the years, what I noticed personally in my practice was it had it was pretty usual for me to say to a client, let me go help you find an apartment. Let me help you, let me connect you with my banker, let me introduce you to some insurance brokers. We're gonna need some additional support along the way, and I don't want you to pay me to do those things. So there was this natural progression of a better understanding of the divorce experience. But when I actually separated and divorced, um, that was a pretty big, big turning point. And it is, it is what prompted me to write the book.
Karen Covy 7:06
Interesting. So, so yeah, and you know, your business experience, your personal experience all sort of come together. And I know one of your sweet spots, and one of the things I really wanted to dive into with you in the show is the intersection of divorce and business. When a founder, a CEO, a business owner is getting a divorce, they have different considerations. That's a whole different ballgame. So, can you can you tell us about that?
Nicole Sodoma 7:35
Well, when a business owner, and I'm gonna I'm gonna use the word business owner, and I might stereotype between men and women uh some, so that's my disclaimer in advance. But um when a business I do have a lot of business clients, and uh the reason they come to me is because I do own a business and have actually owned a few businesses over my lifetime, and so the law firm being one of them, but um I always laugh when I say, well, let's talk about the business, and if it's uh a male client, I will hear it's not worth anything, it's only worth what's in its bank account, and I have a lot of debt. And then I just laugh. And when in in that same scenario, if it's a woman whose husband owns the business or whose the title of the business is in the husband's, she'll say it's his business. Um, and that's the end of the story. Like the assumption is that she has no interest in it, and there's an immediate onset of fear. And so I always think that's so interesting and so frustrating because there are so many things that you could know and be doing differently. And I don't, as women, I don't want you to bury your head in the sand. And as men, I want you to be more realistic about what the options are going to be. And so the, you know, from the business valuation to the normalizing adjustments from the accountant and the valuation, and yes, there is a possibility that even though you own a business, um, that your stereotype, that your wife will come home one day and not want to be married to you anymore, and that is going to be a disruptor in your business. And uh, so what could we be doing in advance of that? What transparency could we have? What things do you not want to make transparent? Because I do represent both sides, um, and understanding all those things and not burying your head in the sand to my guys who think it won't happen to them.
Karen Covy 9:37
So it sounds like both sides, whether, and again, just being, you know, general, general and gender, um, the guys or the person who owns the business, most of the time, they're the ones that are gonna say it's not worth anything or it's only worth what's in the bank account, because they're the ones that are going to keep the business, right? And it's normal to undervalue what you're gonna keep. Um what would you say to those people? Like, where are their false assumptions? What are they not seeing that they should see?
Nicole Sodoma 10:11
Well, I'm gonna say you say it's normal, and I would say it's strategy to undervalue what asset you want to keep, right? And that's not just the business. That's the usually the largest asset that most families have is their house. And so it's typical and strategic to undervalue the asset that you want to keep. And uh so I do think that's an important factor because I don't think people realize that. They go, oh, I have a real estate agent and the fair market value is blank. Well, that's not exactly the way it works. Um I mean, if the both parties agree to that value, yes, okay. But it might be a little bit more nuanced than that. So, for the business side, you know, some of the really obvious things. Am I am I moving too fast? Am I good?
Karen Covy
No, not at all. You're good. You're totally good.
Nicole Sodoma
Okay, so on the business side, I think of um things that are more obvious, like what we're running through the business, um, what business expenses are being run through the business, what are we calling shareholder loans? What um travel are we expensing that we would not have otherwise expensed that's reducing the value of the business? Um there are lots of backdoor ways to, I hate to use the word hide money, but hide value, make it less transparent. And uh so those are, you know, those are some r yellow flags that a business valuation expert is going to look at.
Karen Covy 11:42
So, let's dive into that. Let's say that the because I've seen this with so many business owners, especially small business owners, the bigger the business gets, the more difficult it is to do this. But let's just say that there are a lot of personal expenses being run through the business. And that, you know, so it looks like the business has a lower value. Um if something like that is happening and the wife knows, she's like, hey, the business paid for our last five vacations, the business pays for our cell phone, the business pays for blah, blah, blah, blah, blah. There's something she's going to know, but something, some things she's not. So, in that circumstance, do you always need a business valuation to find the true value of the business?
Nicole Sodoma 12:30
I like the fact that you pointed out that, you know, larger businesses are going to have it's going to be a lot harder to value a large business. And if there are other shareholders or members of that business, it's going to be hard. The other piece is is there an agreement between shareholders or members that um when I'm going to use that word interchangeably, because basically owners, if there's a partner, if you will, um, because there may be some sort of uh valuation assumptions set up in that agreement between the shareholders.
Karen Covy 13:05
And that you valuation Value, let me stop you right there. What valuation assumptions? Can you explain that?
Nicole Sodoma 13:13
So it may be that there's an agreement. If uh if your spouse owns the business, you let's say you let's assume that you own half, presumptively, of that interest, okay? So, you and I own a business, and my spouse, even though his name is not on the shareholder certificate or whatever, um he might own half of my interest, right? But you and I are business partners. And let's say you and I have an agreement that says in the event I ever get divorced, the value of my interest would be calculated like this. And that valuation might look different than what a business valuation might look like. And it's an argument. Now, most of the time, domestic world, domestic law is going to trump those agreements because those agreements are strategic, but that is an argument to be made. And a lot of people are book balance values assigned that we ignore.
Karen Covy 14:15
So, if I hear you correctly, just because two partners or however many partners have an agreement that says, in the event of the divorce, this is the way our business will be valued. Just because that agreement says that, it doesn't bind the divorce court or the family law court.
Nicole Sodoma 14:33
Um it depends on the way it's drafted and the circumstances, the size of the company. I mean, there's lots of things that it depends on, but it is there's definitely an opportunity to look at that agreement and understand why it was drafted that way, when it was drafted, uh, is it valid? Is it something that would be set aside? It's just an opportunity to better understand what the value of the company is going to be. Because I've seen everything, right? So, I mean, any I think if you ever found a lawyer that told you exactly the way things were going to go down, you should run in the other direction. Uh, family law is a beast. Um, it is, you know, a lot of the judges in family law, and you might actually also be dealing with a judge that is man is on the business court side, just depending on your jurisdiction. But in family law, most of the time, the judges don't have solid big business backgrounds because they didn't own businesses. They might not have been business attorneys. So, you know, that makes this process even more complicated when you're trying to decide how to resolve your case.
Karen Covy 15:46
Does the timing of that agreement make a difference? For example, I can see a situation where husband and wife are going to get divorced, and you know, a month before the husband filed for divorce, he and his partner signed this agreement saying this is how we value the business. Does it matter if they signed it like a month before the divorce was filed or 10 years before the divorce is filed, or is that not a factor?
Nicole Sodoma 16:14
I would say that doesn't pass the sniff test, right? So I mean, you know, you know, getting out of a contract, it's the um condition the things that we look at when getting out of a contract are pretty much the same across the board. Is it coercion, uh duress, did you sign it under duress? We do look at timing. We look at did you receive uh you know advice? Is it so advice from counsel um that was independent? Did you have an opportunity to do that? Is the agreement so unconscionable that no one in their right mind would ever have signed it? Um, you know, and of course, like the legalities of the agreement. Did it need to be notarized? Is it, you know, arm's length, that kind of thing. So, um gosh, it's just like a lawyer to say like it depends and that area is gray. You know, it's actually one of the really cool things about family law and about the law in general is that, you know, we have statutes, but those statutes are defined by the case law. And unless, you know, in family law, it's probably fair to say that our family, in family law, the cases, we it changes all the time. I mean, especially as relationships evolve, um, as AI evolves, you know, I think of when we uh when marriage equality, you know, when that period of time, I think of step parent adoption, all these things that we do to evolve, our statutes might still read the same, but we're changing the case law. And so, knowing what the case law is in your state is going to be really paramount to you having the best results. And also, I want you to make sure that if you do own a business, that you're choosing a lawyer that has experience in business, because that's gonna make, I think that makes a big difference.
Karen Covy 18:05
Yeah, absolutely. Um and it but if I hear you correctly, what you're saying is that if I am I own a business with a partner, would you recommend always getting this kind of an agreement between the two partners to set out what would happen in the event of death or divorce? Or, you know, understanding that the agreement may or may not ultimately hold up depending on the law, depending on all these factors that you just mentioned. But is it a good idea in general to do that, whether you're thinking about divorce or not?
Nicole Sodoma 18:37
Absolutely. No question. You should you should have that discussion with your business partner. Um, you know, it's death, dissolution, uh, it's bankruptcy, it's separate, it's divorce, it's all the Ds. Um, I think once I figured out how to call them four Ds, um, death, dissolution, divorce, and I God, I can't remember bankruptcy is the other one, but I can't remember what I called it. Um so yes, there should be uh a provision and that should be a discussion that you have because you really aren't in business with that partner in order to be in business with that partner's spouse, right? Most of the time, that's not what we're doing. And so that is really important. Now, if you're a single member or a sole shareholder, there's not going to be an agreement with yourself. Um, but uh and that's um c can be even harder to determine when we're determining valuations, right?
Karen Covy 19:35
Yeah, a hundred percent.
Nicole Sodoma 19:36
And we're looking at determining valuations is not the right word, but uh when we're determining value of the yeah, determining the value of the business, it is uh it tends to be more complex. And a lot of that is to me because the judges are more accustomed to looking at W-2s and uh not, you know, the complexities of a business filing.
Karen Covy 20:00
Well, that raises a question, interesting question. Um I'm curious, let's say I'm a business owner in in the Carolinas and I come to you and I say, I have this business. Is there a way? I mean, if I know the judge isn't going to have any business experience, what would you recommend to me? How should I look at resolving my divorce in a way that keeps me away from that judge who doesn't have the experience I need?
Nicole Sodoma 20:26
So, you always could uh use a mediator. So, uh both parties would likely have counsel and use a mediator to attempt to compromise. You also could ask that mediator to put on an arbitrator hat, which is a person who can make the decision, or you can just skip that attempt and go straight to an arbitrator and have an arbitrator make the decision, uh, which is, you know, a ruling that could be appealed. Um but usually what happens is there are two valuations performed. Uh each party hires its own person to value the business, and then you have an opportunity to see the other person's valuation and redline it and decide what's fair and reasonable and what is not accurate.
Karen Covy 21:18
So, let's take that scenario, which is actually fairly common. It becomes what I call the battle of the experts, right? So, you have there's one expert for the husband, one expert for the wife. They're, you know, they're both valuing the same business. The values come miles apart, right? Depending on who's keeping the business. Right. Um how do you negotiate that? Or do you?
Nicole Sodoma 21:45
You know, the evidence that you have is going to be, you know, that you're gonna put forward your best evidence. So, it's going to be combing through what is included and what has been left out. Uh knowing what the normalizing adjustments are, knowing what the yellow flags are. Um and a lot of it is it is complex, it's um time consuming, but then you're gonna need to pull out your best evidence and use it to your benefit and also be able to um support the value that you have. And you know, um there are such stark differences. Um not that long ago, one of my colleagues here uh it was the difference in like eight million dollars between the business value that was assigned at the beginning of the case and the business value that was assigned at the end. So, there are, I mean, there is a lot of money to be uh, I mean, you know, gosh, it's mostly about the money, right? I mean, there's a lot of the money and that's a lot at stake. And, you know, as you engage in this process, and especially when their business is being able to step back from it and decide what your priority is, you know, for your sanity, for uh what I mean, I know that doesn't sound very lawyerly of me, but I do want people to understand the complexity of it and know what to look for and make sure that they've gathered the right team. Because a lot of times there, you know, obviously there is going to be one person who knows a lot more than the other. And so, gathering the right team, uh, including the right expert, um, and it may be the right therapist to get you through it, and also prioritizing what your goals are, like what you want in it. Because so often your lawyer is just charging ahead to get the best result when you might not have even needed that. Uh, you might want a year of your life back from being in the courtroom because you would have taken less. So, you know, I really encourage people from the very beginning like what feels fair and reasonable once we get all the information. I want you to look and think about what feels fair and reasonable uh before we get into a courtroom, before we get in front of an arbitrator.
Karen Covy 24:12
That makes so much sense. And it raises a question just for people to give them an idea of how long this process takes and how much it costs. When you've got a spouse, and I know obviously it's going to depend on the size of the business for sure, but when you've got a spouse that has a business or an interest in a business, like they're partners with somebody else, and you're wanting a business valuation, what are you looking at in terms of time and money? Just sort of ballpark?
Nicole Sodoma 24:40
Oh my gosh, if you found a lawyer who could tell you that answer, run in the other direction. You don't know what that's part of the problem. And I think one of the um uh one of the surprises most often is how long it takes. Um, and what your I had a client many, many years ago, and it was actually a custody case, and he said to me, I had no idea the emotional endurance that was going to be required of me in this process. Because, you know, you're often either in grief or freedom, uh, this roller coaster related to the end of your relationship. But then also when you get to that point where you're accepting of the circumstances, it's not over if you're valuing a business, because you're still navigating what you don't know or what you do know when there's a fight over money. And so, and then to make it sometimes even more complicated, if you separated in 2025, when you actually get to the point of valuing is not going to be 2025, right? And so, then we have this period of time where the world continues to spend and transactions have happened. And so, it's like, oh, well, now we have to go back and back to go backwards to figure out the value, depending on your state, what valuation date the court wants to use, and then also what happens in the interim. So, you know, um time is important, time is money, uh, and you definitely have to consider that. And if anybody could tell you exactly what that time was going to cost you and what the cost was going to be, then um I would be remiss not to say like you should run. There they can't tell you.
Karen Covy 26:37
Yeah. So, let's talk about the non-business owning spouse, right? So, let's say that person is hearing from his or her spouse, oh, the business isn't worth anything. I'm gonna keep, you know, I'm gonna have to be paying what I'm gonna have a bank account. Right. I'm gonna be paying you support from what I'm earning anyway, so it's not a big deal, and blah, blah, blah. What criteria should that non-business owning spouse use to figure out do I bother with this valuation that's gonna take a long time and cost a lot of money, or do I not? Am I cheating myself by not? What should they look at to make that decision?
Nicole Sodoma 27:24
That is such a good question. You know, um, and I think that's one of the hardest questions that my non-business owner people face. Is it worth it? How can I tell? And uh unless you have, you know, I would start with your team. Start with who you want to be on your team, and then have them gather the information that could support a decision for you. Because I don't want anyone making an uneducated decision. You need to know what you're willing to risk, you need to know um uh from a you know uh time and money perspective, because the tax return is not going to tell the story. Um, you know, I remember um I had a case a long time ago and um the opposing party paid off an Amex every single month, $400,000 spent on Amex over a year, two years, three years, but as W 2 showed $110,000. Right? Yeah, something just not passing the sniff test, right? That's another one. But the judge only had a certain amount of time to address this in the courtroom, and so she chose to go with the W-2 pending further investigation, additional discovery. So that's another thing to consider. So, I don't want you looking just at a tax return. I want you looking at your lifestyle. I want you looking at how you pay for things, what is spent on a business credit card. Um, you know, there are great summaries that business sales say, well, I don't have access to a business credit card. Well, you might have to, you know, get creative in how you get access. Um, of course, you're going to be able to ask for it through the discovery process, but what do you do in the interim when you're trying to make that decision? And the reality is, is I don't want you to lean just on the tax return. Maybe it's going to be a guide, but your bank account, your lifestyle, and your credit cards are more often telling a different story.
Karen Covy 29:41
Yeah. And so again, to put that story together, what I'm hearing from you is that it it's something to think about, but it's nuanced. It takes time and it takes money. So, whether, and you're still going to be putting it to some third party, whether that's an arbitrator or a judge, and trying to paint your story and hope that they you're persuading them that the story, the picture you're painting is the accurate one, not the picture that your spouse paints, which is going to be very different.
Nicole Sodoma 30:18
Because they are no longer looking at your best interests, because they are no longer your partner. Right. And the people we marry are not the people we divorce most often. And so um, as easy as it seems for some in the beginning, at some point there is going to be a division of this asset. And the longer you let it go in silence, often the harder it is to divide and maybe what you've missed. So, you don't know, you know, we talk about um also the idea that you might have deferred compensation, that there might be a sale that you might not know about, that there might be um debt that you might not know about. You know, we talk about timing, we don't talk about any of those things. And we also don't talk about the liability that the business may have. You know, it's so often it's well, we lived this lifestyle, and then you forget that quarterlies were due and there's a tax liability. And guess what? Uh you in addition to that, it's part of the valuation process, right? Understanding the asset is also understanding its liability. So, I want people to remember that too, because I think that's a really important thing. And, you know, most of the um non-owner spouses have probably signed a tax return that they had no idea what it said.. Especially in the DJ filing, you know, like you don't sign anything. You sign the piece of paper that gives the authority to the accountant to file for you and you never saw it.
Karen Covy 31:56
Yep. So, let's talk about that liability because one of the liabilities a business could incur in a divorce is the liability or responsibility to pay off the divorced spouse's interest, right? The non-owning spouse's interest. So let's say the couple decides or they agree that the business is worth X, and so if that's the asset that spouse number one, we'll call it the husband, let's say the husband is keeping the business and he's got to pay the wife half of X, and that's his only asset, and so that money's got to come from the business. Um, how do you recommend dealing with that? Because I can see that in certain circumstances that could really cash strap a business.
Nicole Sodoma 32:44
Well, yes. And uh the reality is like the judges don't care where you come up with the money. And so, we have a uh multi-million dollar judgment um right now pending, and uh our client has no idea whether they'll ever get paid on that judgment. But that that's the I mean, that's the truth for any litigation, right? I mean, you can you can keep t things tied up in court for a long time, but if you get a big judgment on a human, um are you going to get paid from that judgment? That is a whole nother it's a separate process.
Karen Covy 33:22
Right. But I think so many people don't think about that. They just figure, well, I'm gonna get this multimillion dollar judgment, I'm rich. And it doesn't really work. Well, yeah, but what about you hear the stories, people hear stories because I'm sure your clients come to you the same way as me. Well, we can just we can throw them in jail until he pays, right? Um does that work?
Nicole Sodoma 33:58
Well, if there's an order in place and they're held in contempt, and there's a civil contempt and criminal contempt, um, you know, I hate to say it, it depends, you know, because the reality is if someone is held in contempt, it means that they didn't take, and this check your statute and your state, but that they didn't in the case law that they didn't take reasonable steps necessary to comply. And so that is pretty subjective, in my opinion. What are reasonable steps? If they owed you $10,000 a month and the cash flow allowed for them to pay $2,500, that the court might see that as reasonable given the circumstances, a reasonable step that uh would prevent them from being held in contempt. And then you're subject to attorney fees. So, I mean there, and again, there are nuances with that, but it's um but the consequences of failing to comply depend on the document that was signed. So that's something to consider as well. If it's a court order versus an agreement, that also is something to consider and it's an advice you want to get from your counsel.
Karen Covy 35:13
Yeah, and it sounds like what I'm hearing from this whole conversation if I'm a business owner and I'm listening to it, is get some get a team that knows what they're doing.
Nicole Sodoma 35:23
Yes, a circle of trust.
Karen Covy 35:25
Yeah, this this is not the kind of divorce where you can go and get your documents done online. Like that is not gonna cut it at all.
Nicole Sodoma 35:35
That would be very risky. There's uh that would be very risky, but and so choose your counsel wisely. And it is not a one size fits all show when it comes to lawyers or professionals, consultants, divorce coaches, accountants. It is not a one size fits all. And so, um, and I don't even like relying on, you know, uh I like asking friends, business owners, other business owners what their experiences were, um, what they can expect, how fees are paid, when fees are paid. Um I think all those things are really important too. I know it's sometimes it's easy for people just to rely with what they see online, but um I think it's more than that when you're searching for the right team.
Karen Covy 36:17
Yeah, 100%. Um and when somebody's looking for those right team members, talking to people who've had experience with the same kind of thing makes a difference, right? You know, if you've if your neighbor went through a collaborative divorce and you're looking at massive litigation, the team members are going to be very different.
Nicole Sodoma 36:42
Yes. And if your neighbor had a $10 million judgment, it doesn't mean that you will get a $10 million judgment. The businesses are different, the circumstances are different, the lifestyle might be different, might look one way on the outside, but be completely different in closed doors. So, I think that's also unfortunately we have that scenario a lot where, you know, there are people that are in the same circle but getting different results, and it's because the cases are different. Because in family law, no two families are alike. Uh no two circumstances are alike. We might have this common denominator of issues, but how we've resolved those issues and what the circumstances are always going to be different.
Karen Covy 37:26
Yeah, 100%. You know, there's one more thing that I want you mentioned, and I want to really dive in just a little bit before we close, and that is the what happens between the date of separation and the date of divorce. It's like you I've heard you talk before that the time between separating and divorcing is can be a very dangerous time emotionally and financially. Why? What do you mean by that?
Nicole Sodoma 37:53
I call it the space between because it is, you know, um uh there's a um a quote, and I I'm not great at reciting it specifically, but the quote is between stimulus and response, there is a space, and in that space there is a freedom to choose. Have you heard that before?
Karen Covy 38:14
Yep, 100%.
Nicole Sodoma 38:15
Yeah, and um the book is to my left. Uh I man searched for meaning. And it's in the foreword of that book. And um, you know, uh that is, and I can say this as a business owner who went through a divorce, who had uh, you know, I'm it was in the process, I'm running a business and did not did not run my family life. My that was my husband's responsibility from a financial perspective. So here I was running a business, he was responsible for our personal finances. I was running this business, and uh that space between the time you separate and the time you actually sign a document is a really scary, uneasy uh time. You do tend to second guess everything. You're second guessing everything, right? Yeah, it's like uh you feel like someone is on your shoulder checking, and it's not a person, it's your instinct, it's your gut, it's your nerves, it's you know, your anxiety. And uh so um that space between is really important for you to understand um and to uh, you know, uh I would say things you can do to reduce that anxiety. Um I would schedule meetings with your whoever is helping with your accounting, whether it's your controller, your bookkeeper, your um accountant, your CFO, whatever little size of your business, you know, have check-ins weekly, if not twice a month, so that you understand what is happening because they might do something in your books that you may have been okay with two years ago, but are not going to look well on you now, right? Is it well or good? They're not going to look right now. Um, and to do the same thing with your lawyer, have a standing meeting with that person. Um, I don't love, I you know, what happens is in professional services, it's hardly ever a flat fee. It's usually billed time. And if you email your lawyer 10 times a day, your bill is going to be, it's gonna be so painful. And so, you know, I carry all these, I carry my notebooks with me everywhere I go. And so, when I have a question, I write it down. And then when it's time for the meeting, I might have already found the answer, save me fees, or I can go through my list of questions and knock it all out in one time. So do this as a business owner. One of the things that can keep your head on straight is having regular recurring meetings on the calendar with your advisors. And I like the idea of every week, every two weeks, depending on where you are in the process. Um, it's, you know, even if a mistake gets made, you can fix it, you can clean it up. But if you don't know mistakes made and you're in the courtroom and you're faced with it, uh, you're gonna have egg on your face because you should have what should you have known.
Karen Covy 41:19
Right, a hundred percent. And I would also just sort of piggybacking on that, also recommend that people have regular meetings in that in-between time with their therapist and or their coach. Um because your emotional regulation, it's like you said before, it's up, it's down, it's up, it's down. And as a business owner, that's not good for business, right? Your customers, your business, your employees, everybody needs somebody that's sort of on level most of the time, or the business starts to suffer.
Nicole Sodoma 41:52
I call it the divorce fog. I'm not sure I knew what happened for 12 months in my business, thank God for my firm administrator who kept me afloat. Um, you know, that was it is a divorce fog. So, I it's the divorce diet and the divorce fog.
Karen Covy 42:07
You know, those are very, very real things.
Nicole Sodoma 42:10
They are very real things. So, keeping track of your life in a way that um continues to support your team and your leadership and your family. I mean, a lot is riding on it, and you can do it, but making sure that you've created that team, that circle of trust that can get you through it and give you uh the right information so you can make the right decision is paramount.
Karen Covy 42:34
That makes so much sense. Nicole, thank you so much for sharing everything that you know. I think anybody who has a business and is thinking about divorce or is in the middle of it is definitely going to benefit, benefit from your sage wisdom.
Nicole Sodoma 42:48
Thanks, Karen. I really appreciate all you do.
Karen Covy 42:51
Thank you. Well, listen, for those of you who are out there watching and listening, if you enjoyed today's episode, if you'd like to hear more episodes just like it, do me a big favor. Give the episode a thumbs up, like, subscribe to the podcast, subscribe to the YouTube channel. It makes a bigger difference than you'll ever know, and it's free. So, if you can do that, that would be great. And I look forward to talking with you all again next time.
