The Business Divorce Law Report
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Divorcing couples that own a business together must address business ownership issues as part of the matrimonial issues, in particular the distribution of assets.
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An important issue when a couple divorces is how to address the family owned business in which one of the spouses was involved before the marriage. Courts may distribute the value of owner’s share to the non-owner spouse.
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The divorcing couple may also have individual equity interests in a jointly owned business and must decide whether to buy out one of the spouses or continue on together as co-owners.
The divorcing couple that owns a business together has to manage the family and business relationships simultaneously. That typically involves terminating their relationship as well.
And if one of the parties owned the business before the marriage, such as a stake in a family business, it means dissecting the interests of the divorcing spouses in a way that may implicate the interests of still others.
Portrait of a confident young man and woman working together on a farm.
In a recent case before the Supreme Court in Montana, the issue was how to deal with a distribution of property when one of the sons of a ranching family was divorced from his wife after more than 30 years of marriage.
Business Divorce Issues Related to Divorcing Business Owners
The wife claimed an interest in the limited partnership that owned the ranch and argued that it should be valued for the purposes of the parties’ property settlement and not as a family business. The limited partnership vigorously disputed that she had any interest in the business.
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The case, In re Frost, relies on the liberal provisions of state law that provide that anything owned in whole or in part by the married individuals is distributable in a divorce. The trial court rejected the claim of ownership, but the award in some ways treated the rancher’s wife as if she had.
The case is distinct from matters that we see from time to time in which the parties do, in fact, each own an individual equity interest in a business. There, the issues become more complicated when the business itself must be dissolved or one of the couple forced to sell.
In the Frost case, the couple, Sherri and Kevin Frost, were married during college and lived for a time in Seattle, working as dental hygienists. They returned to Montana to raise a family and work on the husband’s parents’ ranch. The marriage deteriorated, leading to a domestic violence incident in 2016.
Court Must Distribute Business and Personal Assets in Divorce
In the marital property distribution, the court divided the parties’ retirement accounts, awarded Sherri the lion’s share of the family home, and gave Kevin all interest in the family ranch operation and property in Butte gifted to him by his parents.
Sherri received 53.2% of the net assets, while Kevin received 46.8%. Sherri claimed the District Court erred in valuing and awarding the couples’ limited partnership interest and distributing some interest to Kevin, which she believes is contrary to Montana’s policy.
Additionally, Kevin contends that the court erred in concluding that Sherri had any involvement in maintaining the limited partnership or the Butte property, which should have been entirely his.
The Supreme Court found that the record supported the court’s conclusion that the property has been operating as a ranch for three generations and should be valued accordingly.
The court went on to note that under Montana law, a judge is to equitably distribute all assets owned jointly or by either party, regardless of when or how they were acquired. Sherri received no interest directly in the entity.
Do the Divorcing Spouses Have Individual Equitys Interest in the Business?
The court considered Sherri’s non-monetary contributions as a homemaker and the extent to which the contributions facilitated maintenance of the property. And in this case, it determined whether the distribution of property was an acceptable alternative to maintenance arrangements.
The lower court had correctly included the value of the limited partnership and Butte property as part of the total value of the marital estate under our existing precedent, the Supreme Court held.
The court found that the time, resources, energies, and funds of both parties were committed to the accumulation and preservation of the parties’ lifestyle and assets.