Your Business Has a Lot More in Common with Amazon Than You Think!

The story that everyone is talking about: Jeff and MacKenzie Bezos and their divorce. In a prior blog, we discussed that the Bezos’ didn’t have a prenuptial agreement and what that meant for the division of their property. Washington, their state of residence, is a community property state. As a reminder, with the community property approach, all marital property would have been divided equally, that being 50/50, if Jeff and MacKenzie couldn’t reach a settlement outside of court.

Division Of PropertyOn Thursday, April 4, MacKenzie Bezos announced that she and Jeff had completed the process of dissolving their marriage. MacKenzie granted Jeff 75 percent of their Amazon stock along with voting control, all of her interest in The Washington Post and all of her interest in Blue Origin aerospace company. One of the biggest questions surrounding the divorce was if Jeff would continue to be the largest Amazon shareholder. The announcement confirms that Jeff remains Amazon’s largest shareholder with a stake of about 12 percent, rather than his previous 16 percent. The settlement, giving MacKenzie 4 percent, makes her the fourth-richest woman in the world. Jeff continues to be the richest person in the world despite the $35.6 billion Amazon stock loss.

However, this could have had a much different outcome. What could it have meant for Amazon? Jeff and MacKenzie were married in 1993 and lived in New York, but in 1994, they moved to Seattle to start Amazon. Jeff was the founder and CEO of Amazon as well as the largest shareholder. Although Jeff plays a much larger role in Amazon today, Jeff and MacKenzie were both part of the founding team. Since Amazon was not founded until after Jeff and MacKenzie were already married, it is safe to assume that the company and Jeff’s 16 percent ownership was part of their marital property.

In order to think about the different affects this could have had on Amazon, it is important to understand corporate structure. With corporations, there are C corporations and S corporations. The main difference between C and S corporations is how the company is treated for federal income tax purposes. C corporations are separately taxable entities while S corporations are “pass-through” tax entities. Further, C corporations do not have any restrictions on ownership, where S corporations can have no more than 100 shareholders. Amazon.com, Inc is a C corporation.

A typical corporation consists of shareholders, officers and a board of directors. Shareholders invest money in the corporation and therefore have ownership interest. Shareholders elect the board of directors and the directors oversee and direct the corporation. The board of directors elect officers and the officers manage the “day-to-day” operations and business affairs.

Although Amazon has many shareholders, Jeff was the largest shareholder of the company with his shares equaling about 16 percent ownership. With community property division, Jeff could have had to split this with MacKenzie, leaving each of them with roughly 8 percent ownership, rather than the settled upon 12 and 4 percent. As a result, Jeff would have no longer been the largest shareholder and he could have lost a lot of his control. If the division of marital property between Jeff and MacKenzie had split 50/50, it would have ultimately led to a change in Amazon’s corporate control. MacKenzie would have had more authority to push for changes, she could have requested to be part of the board of directors or she could have sold her shares to an investor. Now that the settlement is done, everyone from shareholders of the corporation to those who simply use the website as consumers can hopefully rest easier knowing the settlement isn’t one that brings about big changes for Amazon.

The overlap of Jeff and MacKenzie’s divorce, their property division and the potential for change in Amazon’s corporate control demonstrate how one decision can lead to multiple legal issues. You may not think that the pieces of your life overlap, but they do. Did you start your business during or after you became married? Did your business grow in value during the marriage? Is your business protected or will part of it belong to your soon-to-be-ex-spouse? In North Carolina, most property obtained during the marriage is classified as marital property and is subject to equitable distribution. 

There could be a lot of moving pieces in your divorce, meaning that there may be a lot of assets, including your business, with varying amounts of debt. If so, the parties are free to come to an agreement on how to distribute marital property, including your business. We recommend to all of our clients that they attempt to settle in lieu of litigation, at least for a brief time, in order to determine what you will receive instead of the Court telling you what you can. Plus it will save you a lot on attorney fees and expert (business valuation) fees that you cannot recover through an equitable distribution claim.

At Marcellino & Tyson, we are able to provide legal representation in both family and business law. Jeff and MacKenzie Bezos were able to agree on how to split Amazon in their divorce, but your business may not be “yours” as much as you think. It is common for a divorce to also lead to business changes – we understand that and work as your advocate to protect what’s yours.

Sources: CNET, NY Times, Wired, NBC News, The Atlantic, CNBC

______________________________________________________
The purpose of Marcellino & Tyson’s blog and information postings is to provide news, general information and a general understanding of the law. All content is for informational purposes only and is not legal advice. In addition, reading our informational news does not establish an attorney-client relationship. If you are seeking legal advice, we encourage you to contact an attorney to evaluate your needs.

2019-05-29T00:30:16-04:00