Divorce: A Life and a Business Unravel

When Ken and Daren Wagner divorced, their business became a battleground. Could your company survive the breakup of your marriage?

It was more than Daren Wagner could bear. As she made sandwiches in the kitchen for the kids' lunch one April afternoon in 1999, she overheard her estranged husband in the basement office that he still used for the family business. The couple was in the throes of a bitter divorce, yet there was Kenneth Wagner talking to banks about financing a new boat for their charter cruise company.

Furious, Daren called her lawyer. "I went ballistic," she recalls. "Can you think of one good reason why I should agree to be saddled with hundreds of thousands in debt to expand a company he claims as a nonmarital asset?"

But to Ken, it made perfect sense. He had found a tremendous deal on a larger boat that he figured could have saved Chicago's Wagner Charter Co. about $300,000 a year in fuel and labor costs by carrying more passengers on fewer cruises around Lake Michigan. This would have freed up more money for support payments to the Wagners' three kids, he reasoned.

Daren saw it differently. She feared Ken would rather bankrupt the business she had helped him build than let her have her share. The next day, she won an injunction prohibiting Ken from buying the boat. Her move was just one of the many steps the couple would take to lash out at each other through the business. Over the course of their lengthy divorce proceeding, their acrimony threatened to sink Wagner Charter along with the marriage.

From their separation in October, 1997, to their final divorce decree in January, 2001, Wagner vs. Wagner has drained and embittered Ken and Daren, consumed more than $100,000 in legal fees for six high-powered lawyers, and spurred an avalanche of court orders--52 by last count. The case has been punctuated by screaming matches and accusations in the court record of spying, missing funds, absconding with documents, and Ken Wagner's guilty plea on a charge of domestic battery. While the Wagners fought over other matters like child custody, court transcripts show they battled mostly over the business: who owned it, who should run it, and who contributed most to it.

Daren and Ken Wagner agreed to talk separately with BusinessWeek Small Biz, in hopes that other married business partners might learn from their mistakes. Their accounts were corroborated through interviews with lawyers, employees, and competitors, as well as DuPage County court records, financial reports, and legal and banking correspondence.

While the Wagners' story may represent divorce at its most wrenching, the strains this divorce put on the family business are far from unique. In a 1997 study by Arthur Andersen, 22% of the 3,000 family businesses surveyed said they'd been hit with a family member's divorce in the previous five years. The results are often ugly. "Too often, divorcing couples think they can harm each other through the business," says Jeffrey W. Brend, chairman of the Chicago Bar Assn.'s matrimonial law committee and the Wagners' business valuator. "But the business is your shared asset. It's like amputating your own limb."

Of course, not every business goes down with the ship. Some divorcing couples even manage to continue as working partners.

Not the Wagners. From the time they got married 13 years ago, they fell into just about every trap that family business experts warn against, starting with a violation of the most basic commandment: Couples should spell out their business partnership in writing, from equity ownership to exit strategy. Ken and Daren also erred on the emotional front--never creating any boundaries between their business and personal lives. "We were so young," Daren says. "The whole thing was by the seat of our pants."

THREE MONTHS AGO, Wagner Charter was still going full steam on Chicago's waterfront, with $1.6 million in sales last year and six full-time employees. The 105-foot Jamaica rocked with weddings, Christmas parties, and promotions for major companies including Volvo (VOLVY ) and Marshall Field & Co. The company's pirate-themed touring vessel, the Buccaneer, served as the set for a soon-to-be-released murder-mystery flick with Dan Aykroyd. (The victim gets thrown overboard.) Bookings for the season starting in May were at a record high.

Wagner Charter hadn't always done so well. Ken was 19 when his father, Robert Wagner, died of a stroke, leaving his cruise business in receivership. Assets included a single boat that had seen better days as a Coast Guard cutter, a checking account with $142 in it, and $30,000 in bookings for the 1982 season, which was a mere two weeks away.

Ken persuaded the probate court to let him run the 25-year-old company until it could be sold. Five months later, he had grossed $150,000. In 1983, six months before his wedding to Daren Barr, he bid $165,000 at auction for the company, cobbling together a $105,000 bank loan, his own savings, and $30,000 from Daren's father, Jerry Barr.

But Daren's name didn't go on the ownership papers. "My father was afraid that if, for any reason, the marriage didn't happen, then I'd be saddled with half Ken's debts," she recalls. "I also assumed that, once we were married, it would automatically belong to us both." Years later, that decision would become a major bone of contention: Daren felt her contributions were never fully recognized.

THE YOUNG COUPLE'S early days in business together were full of struggle, yet happy. Both just 20 years old, they worked side by side on their 65-foot boat, the Trinidad. Daren acted as sales manager and bookkeeper, and hosted the 150 passengers on each cruise. Ken piloted and maintained the vessel. "We were so broke that there were nights we slept on board because we didn't have enough money to buy gasoline to drive home," Daren recalls fondly. "We built it up from nothing."

But as the business expanded and the couple started a family, the pressures became overwhelming. Daren was exhausted from her grueling hours in the business and caring for two toddlers. At the same time, Ken was distressed to see his company losing ground to competitors. "In 1985, the Trinidad was the largest charter boat in Chicago," he recalls. "By 1987, that was no longer true." To keep pace, he says, Wagner Charter needed a larger boat with an open upper deck and climate-controlled banquet hall below.

In February, 1990, after three years of searching for an affordable vessel, Ken bought a new hull and a used offshore-oil-rig supply boat to strip for parts. He built his own boat, the Jamaica, at one-third the cost of buying a new one, and took out $525,000 in 12-year Small Business Administration loans. The gutsy move won him plaudits from the other boat operators along the Chicago waterfront. But Daren was upset, recalls Ken. "She said: `You're risking our entire livelihood on this rust bucket."'

The rift over the boat exposed larger problems in their marriage. For one, they had no life outside the business, both agree. Daren wanted Ken to spend more time with the family. Ken believed he owed it to them to put the business on a more solid financial footing. So, while Ken spent the better part of six months at a Louisiana shipyard supervising construction of the new boat, Daren was left alone to juggle client meetings and diaper changes, supervise boat maintenance, and sing lullabies. The experience, she says, was "sheer hell." By the time Ken piloted the Jamaica up the Mississippi, Illinois, and Chicago rivers on its inaugural voyage in August, 1990, Daren was sick of the boats.

A year later, she and Ken adopted a child and Daren's focus drifted away from Wagner Charter. She formally resigned as an employee in 1995, but the couple continued to quarrel over the business, especially Ken's long hours and Daren's diminishing involvement.

Daren, by now 30, had begun to yearn for a professional identity of her own. "I wanted my own business," she says. "I told him: `All these years I've worked my butt off to support your dream. Now it's your turn to support mine."'

So Ken agreed to a deal: She would buy rundown historic houses for resale, and he would renovate them during the off-season, using his deckhands as a construction crew. The new company, Metromorphis Inc., was incorporated in 1995. Wagner Charter provided initial financing and co-signed some loans. Daren insisted that both the new company and its checking account be in her name alone.

At first, the new venture looked promising. The first job, fixing up a 100-year-old house in the Chicago suburb of Elgin, was finished on time and netted them a $20,000 profit. But the second project was far from complete by the time Ken and his crew had to return to the boats.

That led to more marital fireworks. Ken wanted to sell the house unfinished and pay off the mortgage. Daren insisted on pressing ahead and hired other workers. Ken's mistrust became apparent. "He'd drive by all the time, peeking in the windows and spying on the work. He couldn't stand it that he was no longer in charge," says Daren, who says she had all the locks changed on the historic house to keep Ken out. "After May, 1996," says Ken, "I was no longer allowed on the property."

For his part, Ken says the visits were necessary because Daren was managing their finances poorly. "All our free cash went to pay enormous labor costs," says Ken. "The mortgage on our family home was overdue."

By then, the Wagner children were the only glue holding the marriage together. For the kids' sake, Ken and Daren saw a marriage counselor, who suggested they sell Wagner Charter and start fresh. But they argued over the terms of the sale in front of prospective buyers, scaring them off.

By August, 1997, the Wagners were discussing a trial separation, and the following October, Daren filed for divorce. At first, the split was cordial enough. Ken moved to an apartment nearby and had unlimited access to the children. But things deteriorated quickly over the next month. It started when Ken petitioned the court to declare Wagner Charter a nonmarital asset, noting his purchase of the company before their marriage and Daren's minimal involvement since 1991.

Daren was quick to respond. Noting that her name was still listed as a co-signer of the company's annual line of credit, she wrote their bank in Nov., 1997, and withdrew approval for all "pending and future loans." She also claimed $200,000 was "missing from the business accounts and unexplained." In response to Daren's letter, the bank froze Wagner Charter's credit during a six-week investigation but found no improprieties, the court records show. During that time, Wagner Charters' employees, who have backed their captain through the entire divorce proceeding, say that Ken couldn't meet payroll. They say Ken eventually paid partial wages out of his own pocket and made up the rest once the bank restored credit.

The bank restored Wagner Charter's line of credit, and tempers might have cooled with a bit of time and distance, if the estranged couple hadn't been forced to keep running into each other. But Ken continued to manage Wagner Charter from the finished basement of the family's 4,000-square-foot ranch house in the western suburb of Carol Stream, Ill., where the company paid $1,200 monthly rent for use of the space. Although the office has a separate entrance, it also has a staircase leading directly to the kitchen.

On Dec. 15, 1997, court records show, Ken ran up the basement stairs to ask why one of their three children had failed to meet him in the office to go home with him for a pre-arranged weekend visit. Through the closed door, they exchanged angry words. When Daren refused him entry, he shoved the door open so hard it slammed her against the wall, Daren charged. Ken says the shoving was an accident. Nevertheless, he pleaded guilty to a charge of domestic battery in Apr., 1998, and was sentenced to counseling. The court issued an order of protection that lasted until Oct., 1999.

On Dec. 16, the day after their altercation, court records say Daren broke the locks on the office door and took financial documents out of several company file cabinets. Ken didn't file any charges against her, and Daren contends that the locks shouldn't have been there in the first place. "It was my belief that I was an owner of the company and that I had access to the office and the papers," says Daren.

FORTUNATELY, THE CONSTANT strife didn't hurt sales at the Wagners' boat business: The economy was booming, and Chicago's convention trade was thriving. "The boats were sailing full every night," says Holly Agra, who, with her husband, Bob, owns and runs the higher-end Mercury Cruiselines, Ken's closest rival.

But the Wagners' inability to agree on anything hurt their personal finances and Wagner Charter's long-term health. For instance, Ken and Daren had to request extensions from the irs for their 1996-1998 tax returns because they disputed the division of income. Although they eventually filed their returns, the delay kept them from refinancing their home mortgage and business loans at the prevailing lower interest rates, according to Brend's valuation report. Their squabbles also put the kibosh on upgrading Wagner Charter's fleet.

In July, 1999, the court finally declared Wagner Charter a nonmarital asset--a major victory for Ken. But another year of court battles followed, and Ken was exhausted. Last summer, he offered Daren the boat business outright if she would also assume its debts--a deal she accepted. But Ken refused to keep the business open while she refinanced in her own name. Daren says she couldn't meet the bills.

Today, Wagner Charter is in limbo. Ken shuttered it in January and laid off six full-timers. Both boats are in wet storage, and the dock lease has expired. But Daren says she is still taking bookings for the spring and summer. She says she has three different prospective buyers interested in reopening Wagner Charter under the same name at another dock if she'll sell it for the value of its assets only--a fraction of the company's estimated $1.5 million worth as a going concern.

The asset-based sale is a solution both Wagners call "stupid" and one that Ken's attorney, James A. Nadler, and the business valuator Brend had urged their clients to avoid. Nevertheless, Daren's attorney, David A. King, describes the outcome as "practically inevitable," given the couple's bitterness.

The final tally is bleak: After paying off more than $300,000 in mortgages, credit-card debt, and attorney's fees, there will likely only be a pittance left for the children, they say. And Ken will have nothing to show for the years he devoted to Wagner Charter. "Too many people are hurting; I just want it to be over," says Ken. "Enough is enough," seconds Daren. "It's time to move on."

By Molly Gordy

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