Dissolutions of the personal and corporate marriage
Posted on 08/01/2014 at 08:06 AM by Mary Zambreno
Co-authored by Samantha Wagner Do you have a Major League Baseball team that needs to be divided as a result of your impending divorce? If you were Frank and Jamie McCourt in 2011, you did. The details of the Frank and Jamie McCourt divorce are riveting enough to be the plot of a Hollywood movie high-powered and expensive divorce attorneys, a rumored affair, and splitting up high value assets that included ownership interests in the Los Angeles Dodgers. Following a drawn out dispute largely centering on Jamie's ownership stake in the Dodgers, a settlement was reached between the couple. Shortly thereafter, Frank McCourt sold the team for $2 billion.
After this, Jamie McCourt petitioned the court to award her more money in a new divorce settlement and throw out the existing divorce decree, claiming she had been misled about the true value of the team. While the Judge denied her motion, the McCourt divorce illustrates important considerations for all couples who own and operate a business together. While most of us might not own a major league baseball team with our spouses, many couples nevertheless co-own and operate a business together, though Jamie McCourt's argument in support of her ownership interest in the Dodgers was through her marriage to Frank and her community property interest in this asset. When times are good and the business is in the black, no one wants to consider what might happen if the couple separates. By taking a few precautionary steps in drafting your corporate documents, couples can help ensure smooth sailing in the business, even if waters are choppy at home. This proves especially important for businesses where one partner might be heavily involved in the day-to-day work of business and the other partner is merely an owner. Unlike California where the McCourt divorce played out, Iowa is an equitable property state. In Iowa, marital assets must be split between the couple in an equitable fashion. If wife is awarded the business that is co-owned by the spouses, husband should receive assets or a cash settlement equivalent to the value of that business that is being awarded to wife. That is to say, both spouses' columns of assets must be equal and fair. This can cause problems if one partner wants to continue to do business, but the other does not (although, sometimes, couples opt to continue their working relationship).
To avoid an additional dispute in the event that a couple chooses to divorce (and to keep legal fees down), couples should consider including a buy/sell agreement into their business documents, such as partnership agreements, shareholder agreements, operating agreements, and similar documents. This agreement could restrict who the divorcing spouse could sell shares to, include a right of the other partners or shareholders to have an opportunity to buy the divorcing spouse's interest in the business before others, or could even include a provision that upon divorce, one spouse must choose to step back from the business sell his or her interest to the other owner. An effective buy/sell agreement would also include provisions detailing how the sale price for stock will be determined (avoiding an expensive dispute in the future), and could structure a payout plan for the partner who chooses to purchase the stock. By taking extra time to draft an emergency exit plan into business documents, couples can avoid a whole host of headaches and legal fees upon the event of a divorce down the road. These agreements prevent either spouse from using his or her status as a shareholder as leverage in the divorce settlements, and will help ensure the continued operation of a business.
The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.
- Mary Zambreno
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