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The Importance of Confidentiality Agreements and Protection of Sensitive Business Records in Divorce and Family Law Cases

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Divorce can often be a stressful and difficult process, even under “simple” circumstances where the situation is not high conflict and/or the parties assets are not complicated. However, in more difficult situations involving business ownership or a share of a business interest, a divorce can be particularly difficult as the spouse going through the divorce process has not only his or her emotional and financial needs to consider, but also, often duties and responsibilities owed to the business, employees and business partners. Many business owners and/or shareholders in a business have company policies to maintain and abide by for the protection of the business's confidential information, while also receiving pressure from their divorce or family law attorney to provide and gather documents to make a full disclosure of business valuation and asset ownership through the business. In both, Kansas and Missouri, when a business owner goes through a divorce both, the value of the business and the assets owned by the business are a relevant topic for discovery and sharing of information for the purposes of asset disclosure. In many situations, a professional business appraisal is required in order to get to a fair valuation of the business or business interest. In some situations, it is the business owner’s spouse seeking this valuation so that they can prove the value of the business to seek their “fair share”. In many other situations, there are much more detailed considerations than a simple overview of the value of the asset, such as decreasing value for the “good will” of the business, decreasing value for a minority interest, considering the value of the owner spouse’s contributions to the business which typically cannot be valued if the spouse were to leave the business, among many other considerations.

What happens if the business owner’s spouse asks them to produce documents of a confidential or sensitive nature (such as private financial information, trade secret information or even client or customer lists, some of which may be protected by other laws such as HIPAA, FERPA,, among other considerations?

Can Confidential or Private Business Records be Discoverable in a Divorce or Family Law Matter?

Generally speaking, it is difficult to make an argument that such information is not relevant. This is because discovery is generally allowed or reviewed in a broad way, i.e. any information that has the “potential” to lead to discoverable, needed or admissible information is required to be shared. Therefore, if you own a business or an interest in a business, almost certainly, your spouse will be permitted in the family law process, to obtain and discover financial information concerning that business. Thus, it is crucial both, in protecting the interests of the business and in meeting your duties to the business, including other business partners, employees, shareholders or other people involved, that you develop a strategy with your divorce attorney from the beginning of the case, to ensure the confidentiality of private materials.

What Can I Do to Limit the Release of Confidential Business Information?

A common way that a business owner spouse seeks to protect his or her private business information is to execute a confidentiality agreement and/or an agreed protective order, providing for protections and parameters to protect the needed confidential business information.

What is a Confidentiality Agreement?

This is a legal and binding contract between the parties, typically in a divorce case between the two spouses and their counsel, establishing parameters for confidential information. Often there are many considerations to think about in negotiating such an agreement including what information is protected, what information is required to be shared or provided, under what circumstances (i.e. paper copies, electronic copies, whether duplicate copies of the information can be prepared and if so, how those copies will be protected, among many other considerations). Typically, the parameters will also include allowing the spouse obtaining the information to share it with certain experts which can include general categories of approved experts such as accountants and forensic accounts or in some circumstances, requires the disclosure of certain specifically identified individuals or professionals.

What Things Should be included in a Confidentiality Agreement?

Every case, situation and business is unique! Certainly, a family law attorney should start from the perspective of finding out whether your business has any limitations or contractual requirements prior to the sharing of information. At a minimum, a confidentiality agreement and protective order should include a summary about the type(s) of information protected and list clearly the persons who are approved to review the confidential information. In addition to those basics, many confidentiality agreements include information about the purpose for which the confidential information may or may not be used or disclosed (including parameters for how the persons receiving the confidential information will continue to protect the information) and typically, remedies or “punishments” for violating the protective order are listed so that everyone involved can understand the serious nature of the expectations of confidentiality.

At Pingel Family Law, we are proud to represent many business owners or their spouses in divorce or other family law matters. We are proud to assist business owners, and their family members who have often had an integral part in the success of a family business, in ensuring that the business value is fairly and accurately determined and that the interests of the business are protected. Please call our office today at (816) 208-8130 to schedule a consultation so that we can assist you with developing a plan for both, your family law matter and protecting your business interest.

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