John in Raleigh, North Carolina, calls in for advice on a business issue. He sold his company to his daughter and son-in-law four years ago. The contract did not define the company's value. Now, his son-in-law left his daughter and wants his 50% ownership of the company in the divorce. The company's gross revenue is about $10 million. John's son-in-law is described as a "butthole" by John.
John is advised that he has no power as he is now just the bank, and the bank can't interfere with valuation or liquidation. John's daughter has a good attorney who is aggressive. The strategy discussed involves not buying out the son-in-law, offering no profit distributions, and reinvesting profits to grow the company. The company's net profit is $2.5 million, with a 25% cap rate making its value around $10 million. John suggests buying out the son-in-law for $1 million if possible, to become majority shareholder at 51%.
A trust should have been set up to protect against divorces and non-family members owning stock in the company. The LLC stock is held in a children's trust, with only Ramsey blood family members as participants. The trust has been legally ironed out to prevent violations in case of divorce.
The situation with John's son-in-law leaving his daughter has been ongoing since 2008, and he left the business last Memorial Day (approximately nine months ago). John's daughter is 36 years old.
John: I'm calling from Raleigh, North Carolina.
Host: How can I help?
John: I sold my company to my daughter and my son-in-law four years ago. I didn't do a very good job of it because I didn't define what the company was worth when I sold it to them.
Host: Oh boy.
John: So now they're getting a divorce and he's being a butthole.
Host: Yeah.
John: And he wants his 50% of the company.
Host: Yeah.
John: So, we're going through all of this right now, and I'm trying to figure out how to regain control of this situation because I no longer want him involved.
Host: Well, you have no power because now you're just the bank.
John: That's right.
Host: You're no longer an owner. You're now just a lender.
John: That's right.
Host: And so you can't interfere with valuation or liquidation or anything else because you don't own it anymore. You sold it to them. So you've got to let your daughter handle this and she needs to get an aggressive attorney that understands business valuations and understands how to fight these things because she needs to fight for her life here because if he gets half of this thing, he'll run it into the ground or sell it out from under her or do something stupid with it because he doesn't care about her or you or anybody else. He's just being a butthole like you said.
So she needs an aggressive attorney that understands business valuations and understands how to fight these things and she needs to be prepared for him to be ugly about this because he's going to be ugly about this because he doesn't care about her or you or anybody else. He just cares about himself and so she needs to be prepared for that and she needs an attorney that knows how to deal with that kind of person.
And that's all you can do for now - provide emotional support, ensure she receives good legal counsel, and then let her take control. There aren't any other options at this stage.
John: Yeah, we've got a good attorney for her and we're doing everything we can but it's just frustrating because I feel like I'm losing control of something that I built over 30 years.
Host: Well, you did lose control of it when you sold it to them without defining what it was worth when you sold it to them. That was your mistake. And so now you're paying for that mistake but there's nothing you can do about it at this point other than support your daughter emotionally and make sure she gets good legal advice and then let her handle it because there's nothing else you can do at this point other than that.
John: Yeah, we're trying not to buy him out but if we have to buy him out, we're going to offer him no profit distributions until we get our money back plus interest on what we paid him for his half of the company.
Host: Well, if you have to buy him out, then you have to buy him out but I would try not to buy him out if at all possible because once he's gone, then you guys can start taking profit distributions again and growing the company again without having him involved in any way shape or form which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have to buy him out which would be better for everybody involved including your daughter who will still own half of it after he leaves if she doesn't have
John: Right.
Host: So that might actually work in her favor in the long run even though right now it seems like a bad thing but in the long run, once all this is over with, then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then things might actually work in her favor even though right now things seem like they're going bad but once all this is over with then
John: Yeah, well, we've got some cash reserves built up, so we could probably pay off his part pretty quickly without having to put any profit distributions back into the business. This means we could settle his portion of the debt promptly without redirecting any business profits, which is advantageous for us.
Host: Well, there you go. That sounds like a plan. So hopefully everything works itself out okay.
John: Yeah, well thanks Dave. I appreciate everything you do.
Host: Sure thing man. Thank you very much. You know what? Business isn't always fun but sometimes when stuff happens like that where people are being jerks or whatever else, sometimes those are some interesting times too where you learn some stuff about yourself and about other people too where you learn some stuff about yourself and about other people too where you learn some stuff about yourself and about other people too where you learn some stuff about yourself and about other people too where you learn some stuff about yourself and about other people too where you learn some stuff about yourself and about other people too where you learn some stuff about yourself and about other people too where you learn some stuff about yourself and about other people too where you learn some stuff about yourself and about other people too where you learn some stuff about yourself and about other people too where you learn some stuff about yourself and about other people too where you learn some stuff about yourself