DIVISION OF BUSINESS INTERESTS IN THE MARITAL ESTATE
Divorcing when one or both parties hold an interest in a business requires additional information, analysis and consideration. Any business interests in which either spouse possesses is subject to division during divorce proceedings in Massachusetts, just as any other forms of property and assets, including the martial home, stocks and other investments, pensions, and personal property. How the business is divided depends upon many factors, such as the extent of either spouse’s involvement in the business, how the business is held, the level of income and support, and the type of product or services the business provides. For example, if one spouse is the primary owner and manager of the business, the court will likely attempt to keep the business in tact so that spouse may continue to operate the business after the divorce. This can be done by allocating other assets in the marital estate to the benefit of the non-owner spouse as compensation for the value of the business, or creating a reasonable payment plan.
Problems arise when both spouses are involved in the management of the business, especially when the business is small enough such that both spouses are recognized by clients or customers as “the face” of the enterprise. Occasionally these issues can be anticipated and resolved by terms of the partnership or corporate documents filed with the Secretary of the Commonwealth when the business was formed. These organization agreements may include non-compete clauses, especially with professional services such as attorneys or physicians, that will be held enforceable by the court. See Wells v. Wells, 9 Mass. App. Ct. 321 (1980).
Short of any language in organization documents, the court’s division of a business in which both spouses are involved will be based upon the facts of each case. The preferred approach would be for the parties to reach an agreement regarding the division of the business, since the parties themselves have the best understanding of the business and how it could continue to operate and thrive post-divorce. The judge, in contrast, will be forced to make a decision based upon the law, which could result in greater hardship on the business and the parties than if an agreement was reached before trial and, ultimately, the court may simply order the business to be sold.
If you are considering divorce and own a business, it is important that you consult with an experienced Massachusetts family law attorney who can help guide you through the process of the division and valuation of the business.