As we continue to look at Dick and Jane and the topic of divorce, recall that the process is underway and we have moved past the temporary hearing into the discovery phase. This month and next, we will look into the discovery process and determine the information that each side will need to have to move the case into a posture for settlement or a final trial.
From Jane’s standpoint, the discovery process will center on two areas, the first of which will be personal to her but ultimately of little long term benefit to the Court and the second of which will be critical to resolution of the case by settlement or trial. Unfortunately, too many litigants become obsessed with the former and minimize efforts on the latter.
First, Jane is undoubtedly going to want information on the subject matter of Dick’s affair. There is no issue that this subject is relevant to the issue of divorce, but not to the extent that Jane might think. One’s emotion side drives this quest for information and it is not uncommon for someone in Jane’s position to seek answers to these questions:
- Who is she?
- When did it start?
- How long as it been going on?
- Is Dick intending to stay in a relationship with this person or was it a “fling?”
- Why did this happen?
While many of these questions are critical for Jane to resolve in order to move past the emotional issue of the affair, many of these answers will have little relevance in Court. Judges are very accustomed to hearing about misconduct and tend to try keep focused on the incomes of the parties and assets to be divided. The Court will want to be aware that an affair occurred, but usually only needs to know:
- When did the affair start?
If the affair is post-separation, it did not cause the divorce unless it can be shown that the affair or relationship was contemplated or “in the works” prior to the separation. If the affair was 5 years before the separation and ended as quickly as it happened, it probably is not the cause of separation either.
- Has Dick used marital funds in furtherance of the relationship?
- Is the relationship ongoing and does it have the potential to impact the children?
It is not uncommon for one spouse to ask the Court for an order prohibiting Dick from keeping the children away from individuals with whom he was romantically involved. For many years, the Court would enter these prohibitions as a matter of course, particularly in cases where an affair had occurred. However, a series of appellate decisions in Georgia have consistently held that a blanket restriction on contact with members of the opposite sex or individuals with whom a party is in a romantic relationship is overly broad and unenforceable unless there is a specific finding that the situation or introduction would have a harmful effect on the children. Some appellate examples include:
- Ward v. Ward, 289 Ga. 250, 250–51(1), 710 S.E.2d 555 (2011) (holding that trial court abused its discretion in amending visitation provision in final decree to provide that mother “ ‘shall not have any overnight male guests while the minor children are present’ ” because the provision would prohibit the mother “from having visitors with whom she has no romantic relationship”);
- Arnold v. Arnold, 275 Ga. 354, 354, 566 S.E.2d 679 (2002) (holding that trial court abused its discretion in prohibiting children “from any contact with a certain named friend of Wife” when there was “no evidence that the relationship between Wife and her friend was or will be harmful to the children, or that they ever engaged in any inappropriate conduct in the presence of the children”);
- Brandenburg v. Brandenburg, 274 Ga. 183, 184(1), 551 S.E.2d 721 (2001) (holding that trial court abused its discretion in prohibiting father from exercising visitation with children in the presence of his girlfriend, even if the two should marry, when there was no “evidence that such relationship had or likely would have a deleterious effect on the children beyond that normally associated with divorce or a parent’s remarriage”);
- Mongerson v. Mongerson, 285 Ga. 554, 556(2), 678 S.E.2d 891 (2009) (holding that trial court erred in prohibiting husband “from exposing the children to his homosexual partners and their friends,” which was “an arbitrary classification based on sexual orientation” but holding that trial court’s decision to prohibit children’s exposure to paternal grandparents was not an abuse of discretion when evidence showed that grandparents “had been physically and emotionally abusive of the children”), overruled on other grounds by Simmons v. Simmons, 288 Ga. 670, 706 S.E.2d 456 (2011).
The second area of discovery which is far more critical to the case and is often minimized by the party is the financial aspects of valuing Dick’s company. In an upcoming blog, we will devote an entire discussion to the process of valuing a marital business. In the context of this discussion and the initial discovery requests, Jane needs to be highly focused on the operation of the business more than the financial outputs. Most often, a party will request information about the numbers, for example:
- Profit and loss statements;
- Financial statements;
- Tax returns;
- Bank records; and
- Balance sheets.
This information is certainly sufficient for generating a value of the company. In fact, if limited to this information there would be little point in Dick and Jane hiring opposing financial valuation experts. On this information alone, the generally accepted standards of the valuation industry would cause most valuation experts to generate a result that is not substantially different from one another. However, the financial records only tell a portion of the story. For reasons we will discuss in greater detail, it is far more important that Jane gain an accurate picture of the following:
- Largest customer and percent of revenue;
- Market share data, including industry competitors;
- Covenants not to compete among key employees;
- Previous value statements of enterprise v. personal goodwill;
- Executive compensation packages; and
- Recurring v. Non-recurring revenue items.
This information will be critical in “moving the needle” up or down and will generate the adjustments made by a valuation expert. This is where some subjectivity can enter the process and Jane’s attorney will need to be armed with information to bolster her expert and attack the expert retained by Dick.
Next month, we will look at the discovery process from Dick’s standpoint. Dick’s major concern should be balancing the provision of information against his own self-interest.