Thursday, January 24, 2013

SkinnyGirl Gets Divorced

few months ago I wrote about the real housewife turned mogul, Bethenny Frankel, and her massive deal to sell her SkinnyGirl drinks to Beam Global for $120 million.  In a matter of a few years, Bethenny went from near bankruptcy (despite her designer duds on the RHONY) to multi-millionaire.  She also went from single, to marriage, to motherhood in that same time frame.  And now, she is getting divorced.

I don’t pretend to be an expert in marital law, especially not in New York marital law, but I think this scenario lends itself to another discussion about owning closely held business assets and growing the company value, and the impact of premarital/postmarital agreements and divorce—as I discussed here and here.

Here are the basic facts: Bethenny built and advertised the SkinnyGirl brand prior to her marriage.  She grew the brand significantly as a member of the RHONY cast. About four years ago, Bethenny met her husband, Jason.  They were married a year or so after that and then welcomed a daughter a couple of months after the wedding.  The reason I point out the timing of the birth of their daughter is because Bethenny was pregnant when they negotiated and executed their premarital agreement.  A year or so after their daughter was born; Bethenny inked the $120 million SkinnyGirl deal. A year and a half or so from there, they are divorcing.

A dramatic change in circumstances from the time of the negotiation to the agreement to the time of enforcement of the agreement can be one of the biggest reasons agreements are thrown out or the courts alter the terms.  Having children, when no children had been contemplated in negotiating the agreement, can change the overall “fairness” of the terms.  This has nothing to do with child support—child support cannot be negotiated in a prenuptial agreement—but it does have to do with the expectations of the parties, lifestyle, and needs.  Selling a business or some other windfall can also impact the agreement.  

I don’t actually know the terms of their prenup, but it is possible that Bethenny was aware of the value of the company at that time or may have even been brokering its sale.  If the parties were both aware of the $120 million value and the possibility of the liquidity event, it is difficult to argue that this is a change in circumstances such that the agreement should be ignored.  However, adding $120 million to the balance sheet from relative bankruptcy is a significant change to the household lifestyle.  

Another factor here is likely the length of the marriage and the time between negotiation and enforcement.  Because this was a short union (yet longer than this marriagethis marriage, and this marriage combined), there isn’t much argument that Jason enjoyed the benefits of this lifestyle such that it would be a tremendous hardship to go back to his previous life.

The point of all of this is not to analyze Bethenny and Jason’s divorce, but to point out the impact of a liquidity event in a business completely built by the entrepreneur spouse, closely followed by a divorce.  If there are pieces of a prenuptial agreement that should be re-addressed or clarified, think about amending it or executing a postnuptial agreement.  If you have no prenuptial agreement, think about a postnuptial agreement that addresses this situation.  Issues regarding who can own the company or force liquidation of the company can (and should) be addressed in a buy-sell agreement, but that does not ensure that a divorce court will follow those provisions.  If you have a business, especially with other family members, think through what might happen if a divorce were to follow a significant increase in the business’s value.   

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