Oftentimes, when a party to a divorce action is a partner in a small company or partnership, suspicion falls to the other partner or business. I am often told by my client that he or she is sure that the other partner is helping hide money or engaging in some behavior in order to lower the value of, or the income from the company. Not surprisingly, the question then arises of whether the company itself or the other partners can be brought into the divorce action. Except in rare circumstances, the answer is generally no.
The rules of court govern when a non-spouse can be joined to a divorce action. First, in order to bring in a non-spouse, the moving party must show that the company or partner is what is known as an “indispensable” party. According to Mustilli v. Mustilli, 287 N.J. Super. 605, 607 (Ch. Div. 1995), “courts are free to refuse leave to amend when the newly asserted claim is not sustainable as a matter of law. In other words, there is no point to permitting the filing of an amended pleading when a subsequent motion to dismiss must be granted.” This means that a corporate party may only be joined if it would be difficult, if not impossible for the case to proceed without the addition of the corporation. This is usually not the case. Even when the company or other partners are not actual parties to the divorce action, the Rules of Court provide ample mechanisms for litigants to obtain discovery from non-parties, see, e.g., R. 1:9-1 (issuance of subpoena to non-party for attendance of witness); Rule 1:9-2 (issuance of subpoena to non-party for production of documentary evidence); Rule 4:14-7 (issuance of subpoena to non-party to conduct discovery depositions).
The Rules are designed to make sure that all necessary information is available to the court so it can make a fair decision in the divorce. Thus, complete financial records of the company are generally available for review. The rationale behind this makes sense. If at any time it could be said that a company or business partner is an interested party due solely to the fact that one of its members is getting a divorce, it would throw the entire business world into disarray, not to mention an already over-taxed family court system.
On the other hand, there are instances in which a business partner has in fact engaged in fraudulent or other egregious behavior in order to insulate assets from a partner’s spouse. In these instances, when there is a cause of action against a business associate, the courts will not allow them to be brought into the case, but may in fact appoint a receiver to run the company in order to preserve the value of the asset.
By far, the most important thing to remember when a business is an asset in a divorce, is to obtain complete financial records of the company and make sure that they are reviewed carefully by someone who has experience in such matters. Without these, the non titled spouse ( the non- business owner) will be at a significant disadvantage when it comes to equitable distribution.