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Join Sarah Hink and Ava Jeanette from New Direction Family Law as they chat with guest attorney Matt McGonagle about crucial aspects of business creation, estate planning, and protecting your business in the event of divorce or death. They discuss the importance of having proper legal agreements like operating agreements and shareholders' agreements, and dive into the complexities of trusts, estate planning, and marital protections. Learn how to safeguard your business and assets against unforeseen life events in this insightful podcast episode.
00:00 Introduction and Guest Welcome
00:54 Matt McGonigal's Legal Expertise
01:15 Business Creation and Protection
03:43 Divorce and Business Ownership
06:27 Trusts and Estate Planning
15:22 Final Thoughts and Contact Information
Learn more about Matt McGonagle, a board certified specialist with the North Carolina State Bar – Estate Planning and Probate Law
Learn more about Matt McGonagle, a board certified specialist with the North Carolina State Bar – Estate Planning and Probate Law
Creators and Guests
Host
Ava K. Jennette
Associate Attorney Focus Areas: Family Law, Child Custody, Child Support, Post Separation Support, Alimony, Property Division, Domestic Violence Protective Orders, Family Law Litigation, Separation Agreements, Prenuptial Agreements, and more. Experience: Over 2 years Practice Areas: Wake, Durham, Johnston, and Harnett counties
Producer
What is Ex-it Strategy?
Your no bullsh$t guide to divorce with experienced attorneys from New Direction Family Law and guests and professionals who have been there. Unfiltered discussions to help you move from victim to victorious and from bitter to better.
[00:00:00]
Sarah J. Hink: Hello everyone. Thanks for joining us. I'm Sarah Hink. When the attorneys on New Direction Family Law, I have my sidekick, Ava Jeanette, who is here today in the place of Elizabeth Stevenson. Hey Ava. Hi there. And then we have our guest for the podcast today, attorney Matt McGonigal. Welcome. Thank
ES 3: you. Thanks for having me.
And
Sarah J. Hink: you might, and listeners recognize his last name, that his other half is better. Half Better. Half the Better half. Kelly McGonigal is an attorney with us at New Direction Family Law. She has been on the podcast before. That's
ES 3: right. I think I listened to her episode. You did listen to her episode. Yeah.
Sarah J. Hink: Oh, such a good husband. He is one of the best. We're lucky to have him in the new direction. Family law fam. Awesome. So tell us a bit about your practice as an attorney. You don't do family law.
ES 3: I do not do well. Maybe on the [00:01:00] front end, , maybe I do too much. I don't know. , I board certified estate planning probate law.
And so I do a lot of trust and wills and estate administration on the back end and work with a lot of clients with small businesses, and that requires operating agreements shareholders agreements, and
Sarah J. Hink: we have you as a guest on today to talk a little bit about business creation and what to think about as far as protecting your business as we go down the road and if you're married or have a spouse.
And then also, I mean, as you mentioned with the states, you kind of need to do the same thing as well. That's
ES 3: right.
Sarah J. Hink: Um, because there's protections in life. That's right. You don't know if you're gonna stay married together forever. So if someone comes to you and they wanna, you know, have a, they have a business, they have assets, they're coming to you and need a, you know, protective or some kind of order, not an order, but an agreement for their business.
Yes. What do you tell them as far as marriage? Situations and what to put in there? I think
ES 3: it depends. Like any lawyer, it depends. Yeah. So it depends on what kind of business you have. I mean, if you have an LLC, then you're talking operating agreement, you have a [00:02:00] corporation which are fewer and far between.
You have shareholders agreement. Mm-hmm . That usually is something that you are look at entering into. So I think it depends on what you have and what you, what you are going to do is, is different in those two agreements. Operating agreements are usually a little more flexible than shareholders' agreements.
But, um, I, I'm, that's my first step I'm looking at, do we need to do one of those? If you have other owners, if it's just a single member deal mm-hmm . Then it's not quite as cumbersome.
Sarah J. Hink: It does get complicated when there's other shareholders. Yes, yes. And, um, you know, other owners of the business. And I think that's where I've seen in reviewing people's
Business contracts, their formation agreements, what have you, that mm-hmm . There might be language about divorces and what could happen. Right. So what have, what have you seen as far as languages generally
ES 3: speaking, that's when you've got your buy sell provisions that are, you know, triggered upon a divorce or death or, you know, some triggering event like that.
So that's, that's usually where you're getting into, okay, there's other owners. We gotta protect other owners in [00:03:00] this business, and if we get a divorce, then you know, what's gonna happen to these shares. And there may be a triggering provision in there that says if you get a divorce, and here's the provisions on how you value the shares or the interest.
Sarah J. Hink: Yeah. And that's really to protect the people in the business who are not getting the divorces. That's right.
ES 3: Or the underlying, you know, employees of the business that mm-hmm . Are gonna be impacted by some, you know, spat on the owner level.
Sarah J. Hink: Yeah. Just a little spat over there, and like, you know, how does that.
Frustrate the business. And I know that me and Ava probably see more of that part of it than you do. 'cause you're, you're advising people on the start of it that's like, Hey, you need this operating agreement, shareholders agreement. That's right. Let's maybe put a provision in there about divorce triggering, right.
Someone's buy, sell portion because it might frustrate the business. Yep. And some people are like, oh, I never thought about that. But I see it because we file for equitable distribution and if a business is part of the assets, then we can bring in the business That's right to the party, to the, the litigation divorce party in court.
ES 3: I, I'm, I'm interested to hear what you have to say about it. 'cause I, I have client that for the last 10 years has been in an equitable [00:04:00] distribution matter and we represent the business side of it. And it's, it's a mess. I mean, it's, but it's constantly bringing in the employees on, you know, subpoenas and records and all those other things.
Sarah J. Hink: Yeah. 'cause you wanna get to the bottom of how . Much does that business make? What's the value of that business? Right? Because North Carolina, I mean, if you have a business that you started during the marriage and you're, you know, if you're the sole owner or not, whatever portion of the business that you have is marital property, right?
If it's started during the marriage, right? So then the spouse that's not in the business wants to know, Hey, well how much right? Is that business worth? What's my cut of that business? I'm gonna get half of that portion of whatever you have of that business, right? So then we want, you know, financial statements of the business, tax returns of the business, or trying to value it.
If it's a large business, you're gonna have some attorneys that are representing the business come to court. I've been to depositions about . Affairs, you know, bringing in the third party affair partner and the business [00:05:00] people are there. I'm like, what are these business attorneys doing here? , they're just getting paid to like listen to the good stuff, right?
Yep. Um, but it can get really messy with businesses and I think that's what owners wanna protect.
ES 3: Yeah. I think the, the only ones I've been involved when was just try to keep the business out of the court process and say, mm-hmm okay, what can we give you to just leave us alone? . Right. Exactly.
Sarah J. Hink: Yeah. And so what do you recommend, do you recommend they put those like triggering events in there?
ES 3: I, I mean, I think that if you have unrelated business partners, yes. I think it makes a whole lot of sense to have those provisions in there and whether they trigger them or not, you know, kind of depends on the process on your side. I mean, if you are as part of the distribution, if, if the spouse is getting those shares mm-hmm
Or getting some ownership interest, well then, yeah, you wanna trigger that. 'cause you don't want that person in the business.
Sarah J. Hink: No, you don't. Yeah. And I've also seen some shareholder agreements, um, operating agreements that say I. That triggers it, or if the spouse will sign a waiver. Right. So that could be protect, protect you as well.
Yeah, exactly. Okay. My, my spouse will just sign this waiver saying that they don't want [00:06:00] any of these shareholder or the, the shares. Right. Or the assets and business and they're just gonna sign that away. That's right.
Ava K. Jennette: Which
Sarah J. Hink: is good. And they might do that in the middle of their marriage when everything's hunky dory and happy.
Right. And just sign the waiver. That's
ES 3: right.
Sarah J. Hink: And then the other spouse, the one who signed it, you know, 20 years later and they getting divorced, may regret that. That's right. But
ES 3: yeah, we have, we've done, I mean, we do some premarital agreements and we do, we have done post up agreements like that mm-hmm
Just for specific businesses saying, I, I'm, I, I'm out of this one. So yeah. Protect the
Sarah J. Hink: business for sure. And as far as, trust or concerned, is that something that will protect someone from getting involved into litigation with a divorce?
ES 3: Again, it depends. Yeah. , so North Carolina is not a self settled trust state.
So you can't create a trust for yourself but your own business in it, and then expect it to be protected from your creditors. So that makes you can't do it that way. Makes sense. Tell us more about that. Yes.
Sarah J. Hink: I feel like trust and business, how they're combined and every, it's just really confusing for people.
So including myself,
ES 3: a trust is just an entity like anything else. Mm-hmm . I [00:07:00] mean, so just think of it as an, an owner of any other entity, just like you or a LLC, can own another entity. Mm-hmm . So once you create it, um, you can assign your interest in that business to the trust. And so we do a lot of that on, on an estate planning side, where we do a revocable trust and it'll loan the business and it escapes probate.
And that's normal planning. The irrevocable trust or where you're talking about some potential asset protection from creditors, but you can't do it yourself. You gotta have somebody else create it for you. And then
Sarah J. Hink: a trustee,
ES 3: A grantor. A
Sarah J. Hink: grantor, yeah.
ES 3: Trustee is the person that's actually gonna be in control of the trust.
Got it. Yeah.
Sarah J. Hink: So you would need to have multiple owners of the business, or multiple? No.
ES 3: So normally if you want to be creditor protected, this is something like . If I died, I'm set. I could up put trust for my children. Mm-hmm . That trust is then creditor protected and so their spouses aren't going to be able to get those assets in that trust.
Sarah J. Hink: Gotcha. Um,
ES 3: so there's only one trustee. The trustee can be an owner of a business or the sole owner of a business. [00:08:00]
Sarah J. Hink: Okay. And so you can put businesses in the trust. Absolutely.
ES 3: You
Sarah J. Hink: can put real property in the trust.
ES 3: Absolutely.
Sarah J. Hink: You put all the money in the trust. Absolutely. And that's anything typically recommended, correct.
Like you said? Absolutely. Yeah. Very much so. So why do people choose not to put assets in a trust? Just they don't take the step to do it or
ES 3: that and, and maybe they don't have those assets. Mm-hmm . A lot of people have just like a 401k. It's not really a trust asset. Right. It's hard to do in a trust. So that's not something that somebody needs to trust for.
Yeah.
Sarah J. Hink: But if they
ES 3: have an LLC or a corporation, I, I'm giving 'em a trust.
Sarah J. Hink: Right.
ES 3: Yeah.
Sarah J. Hink: And that's the smart thing to do. Yes. Um, and if you're in the middle of a marriage. Even if things are happy and you have your own business, it's probably smart to take those steps. Yes. Yeah. Um, and speak to an attorney about a postop Yes.
You've done postops. We, we do postops. Mm-hmm . And I, you know, a lot of times I see it when people might be, have, they've separated for a little bit and might be reconciling. Right. But it's also just one of those safety provisions for your business. Yes.
ES 3: I, I, I think that's true. I think especially if you have other outside [00:09:00] parties that are mem members or shareholders with you where you're just.
You have other unrelated interests that are involved. If it's just your business, then it, then that's just, that's just between the two of you. Yeah. You can figure that out. Yeah.
Sarah J. Hink: So if your partner in your business has a Yes. You know, a wife that you can't stand Exactly. You're like, you know what? I think we need to, I think we need to talk about this.
That's right. Exactly right. Yeah. And, and it could be reciprocal. Yes. Everyone can do it. Yes, exactly Right. Sign the waiver. That's right. Um, so what other considerations should someone think about when, you know, starting a business? Yeah. And as far as the shareholder agreements and operating agreements
ES 3: I mean, I think a lot of that has to do with, you know, tax planning.
Mm-hmm. You know, how you want your business to be structured from a tax standpoint. How does that impact. Your significant other mm-hmm. In those choices. Mm-hmm . Um, I think, you know, you deal with divorce, but a concern of mine is if a client dies, how does that impact their spouse? You know, do you have an elective share issue mm-hmm
That you have to deal with? And so that's some of the planning that we try to do on the front end. Yeah.
Sarah J. Hink: You're a one stop shop for all those issues. Yes. Which is really great because they [00:10:00] are also Yeah, they're very intertwined. Yes. Very. So, um, so what if you, what happens, and this isn't really divorce related, but if your spouse does die and they have a business, I mean, what generally does happen in that scenario?
ES 3: It depends on what the will or trust says. Mm-hmm . You know, if, if, if they've disinherited their wife, then there's probably gonna be an elective share issue, and then you're gonna have a court, you know, issue that mm-hmm . You're gonna have to address. And if it's as smooth as, you know, I leave everything to my spouse, you know, then that's a easy probate or trust administration and we just do assignments and it's all easy.
Sarah J. Hink: Well, what, so yeah, if, um, say there's three people in a business and then one of their, one of the. Three dies and their spouse gets their share of the business. What tends to happen is the spouse usually, like, I don't wanna be involved, sells it back. Or if,
ES 3: if you've done your planning on the front end and you've got a buy sell, then it gets triggered.
Mm-hmm . And you've got some sort of language in there that says, all right, this is, here's how we're gonna value this share and we're gonna buy you out, and here's the terms on, you know, five year payout, over X number, [00:11:00] whatever the provisions are. So that's one way to handle it. And if you've not done your planning, and now you just have this random spouse in your business, then you gotta figure out, either you have to figure out how to buy her out, or she's just gonna sit there and be, be part of the business that's get paid.
Sarah J. Hink: Yeah. And looking at those operating agreements, share agreements, a lot of them look boilerplate. But I mean, that's really important information and language to have in an agreement. What's gonna happen.
ES 3: There's, I mean, it's boilerplate if you've done your job right and you make 'em so that they're boilerplate.
Yeah. But you can't just go pull one off, you know? Legal Zoom or whatever and expect it to hold up. Oh yeah.
Sarah J. Hink: We do not endorse legal Zoom on this podcast. No, absolutely not. No, not at all. Fix
ES 3: more problems from there than, than I care to.
Sarah J. Hink: Yeah. Well sometimes you can't fix 'em. That's, that's the problem too.
That's right. That's right. That's right. Sometimes they're valid and you're like, oh, well crap, this is a valid agreement that you did and it's terrible. That's right. We see that lot with it's separation agreements. Mm-hmm. All the time. Yeah. So, and then they come back and bite you. Oh, that's right.
ES 3: Always, always.
Yeah. Yeah. Sometimes you get what you [00:12:00] pay for .
Sarah J. Hink: I know for sure. I mean, you gotta pick your spouse. Yep. You know? Well, and you gotta pick your business partners. That's right. I mean, you never know who you're gonna end up with. That's right. Um, so they're, they're really like one in the same to think about it, that's, you just wanna be physically attracted to your, your spouse as well.
maybe not so much your business partners. That's right. That's right. You can help that. [00:13:00] what else can we give our listeners about, you know, owning a business and divorce? What issues have you run into Ava?
Ava K. Jennette: Um, I have definitely run into
Sarah J. Hink: issues.
Ava K. Jennette: Yeah. Well we had, um, a consult together with some business issues that came up with other owners.
Mm-hmm . And family involved and
Sarah J. Hink: a lot of time there's family. Yeah,
Ava K. Jennette: yeah. Business and family does not seem to go right. Super well together all the time.
ES 3: No, not always. Usually that's where you start getting your problems,
Sarah J. Hink: but it happens a lot all the time. Yeah. Yeah. And I think that's what I see the majority of in a lot of my business cases, related cases that there, there is family involved to some extent.
and then things get more messy. Like, oh, I can't work with my, you know, in-laws anymore. Right. If everyone's actively in the business, both spouses are actively working in the business and and doing something and they wanna figure out a way to [00:14:00] keep the business going, keep everyone in the business, even though they're separating and might hate each other, it can get messy.
That's right.
Ava K. Jennette: Yeah.
Sarah J. Hink: And you think about your employees and what's best if the business is gonna continue. Right. Or you just throw in the towel.
ES 3: Right.
Sarah J. Hink: Sell it.
ES 3: I'm, I'm curious, I got one question 'cause I'd never deal with it on the back end. Mm-hmm . So one, one spouse has a business and you're going through an equitable distribution.
Are there in kind distributions of LLCs or stock that happen or not usually Very often.
Sarah J. Hink: Not very often. Yeah. Because most, I mean, if they're not both involved in the business Right. And actively participating in the business, then I don't, I don't really see that often. They find a way to
ES 3: balance it out.
Yeah. With something else. There
Sarah J. Hink: should be some more money somewhere else to take from. So it doesn't have to be, you know, 50% of every asset that these people own. They could, especially if it's more of a hands-off involvement that the person does have in the business. Right. Right. Like, they don't even actively do much.
Right. But they own shares in the business. It's really just money and dividends that they're receiving. [00:15:00] Exactly. So it can go that way. Yeah. You never know. And they, you can end up with a portion of it and have to be on the shareholders', you know, board Right. And make decisions. All of a sudden she's up there, he's up there and everyone just glares.
I mean, it's gotta be really fun times at the share shareholder meetings. Yeah, yeah, yeah. So you, it, you gotta be careful who you choose. If they have questions, anyone has questions about you know, estates, planning, trust, business startups, they can come to you, Matt. Right? That's
ES 3: that's absolutely right.
And
Sarah J. Hink: where, where can they find you? They
ES 3: can find us at Near Winsell. In Smithfield, in Raleigh.
Sarah J. Hink: Yeah. So I know that we'll have that information on, um, the, the link to it. If Cam was here, she tell you exactly how it works. Okay. And you click on the podcast and look at things. I don't know. There's something out there.
ES 3: There's a link somewhere. I there's a link somewhere. I was sold. I was sold Yes.
Sarah J. Hink: Involved in the podcast. That you can click on it, you find that it'll be in the show
Joe Woolworth: notes.
Sarah J. Hink: It'll be in the show notes. So simple. There it is. , thank you. And the show notes. [00:16:00] Thanks Joe. Um, and of course Kelly's amazing. Yeah.
Awesome. Thank you for sharing her with us. Yes, yes. We appreciate you having, you can find, find her obviously with us in our, in our law firm. Um. New direction, family law.com. Of course, you know, I think she's been really busy with courts. We have Elizabeth in court all this week. Yep. Kelly's been in court all this week.
So if you're out there and you've got a business and you're fighting over it and you're in court, call us up.
ES 3: Yeah. Call them, not me. . .
Sarah J. Hink: Call us and that will, we'll hear about it at dinner. Yes. Hopefully. If I've been
ES 3: involved, we don't have to call you guys. There you go. That's
Sarah J. Hink: very good advice. Yeah. Call Matt first.
Always get your ducks in a row at the very start of a business. Get an That's right partner. Get an estate plan. My partner always
ES 3: says you a client cannot call you early enough. You cannot call me too early. So
Sarah J. Hink: that's true. Us too. Yeah. I mean, if you're smart, absolutely. Get a prenup. Get a prenup in place.
Before's, right? Mm-hmm . You, you end up in court fighting over the shares of the business. Right. Trying to find it all up. That's right.
ES 3: Mm-hmm . Then you got
Sarah J. Hink: business attorneys listening to the affair stuff, and it's a messy, messy situation.
ES 3: It's much more costly that way. That's sure. Yes. Yeah.
Sarah J. Hink: Ain't that some [00:17:00] shit?