Divorce May Be a Great Asset... In a Workout

Personally, I am not a fan of divorce. However, it happens, and all too frequently. Also all too frequently, it either causes the breakdown of a business, or accelerates the downfall, or simply supports a workout because of the very nature of a divorce--the splitting up of assets--and thus, must be considered in the light of a workout.

The key point is that Probate Court will take control of the assets waiting to award the appropriate split between husband and wife. Most important is the Probate Court's position in securing the well-being of the children, thus taking control of marital assets for the benefit of the children. Often, there are court orders preventing the sale of assets or the withdrawal of capital, or simply protecting certain assets for the use, enjoyment and security of the children (and possibly, the custodial parent).

This is potentially good for the defaulted borrower. Once Probate Court gets involved, the banks and the SBA must take their position into consideration and redefine which assets are reachable and can be liquidated. Frequently, important and valuable assets are locked up by the court, a situation which supports a weaker payoff for the lenders, diminishing the net worth of the guarantors.

There are a number of strategies that work with these issues which have the effect of reducing the workout payoffs.

I say again, I am not a fan of divorce, and am not in any way suggesting that it is a good idea. I am, however, stating clearly that once in divorce, one's financial condition drastically changes. With the power of the Probate Court issuing protective orders, the business debt guarantor is in a worse financial condition than he/she may believe or understand in regards to a debt workout which will ultimately benefit the guarantor in the long run (or benefit his/her family), leaving the bank with fewer reachable assets.

Divorce is not typically a good financial planning tool; quite the opposite is true. However, if it occurs, it is a meaningful factor in workout strategy and the conclusions reached.