It seems to make sense that when parties who are business together get divorced, one party has to go. The theory of "this town isn’t big enough for the both of us" comes to mind. In fact, as far back as 1978, the courts of New Jersey recognized this seemingly common sense fact in a case called Borodinsky. In that case, the Court held:
It seems almost doctrinal that the elimination of the source of strife and friction is to be sought by the judge in devising the scheme of distribution, and the financial affairs of the parties should be separated as far as possible. If the parties cannot get along as husband and wife, it is not likely they will get along as business partners …
There is no restriction on the court with regard to ordering distribution in kind of the eligible assets or awarding a monetary equivalent thereof. But, nonetheless, the judge should consider the former relationship of the parties and the fact that post-divorce peace is more conducive to the welfare of the parties.
But what if you agree to stay in business with your former spouse after the divorce? What happens when things go bad? Can you simply force a dissolution or buy out?
This was the issue in the case of Moriello v. Moriello, an unreported (non-precedential) case decided by the Appellate Division on July 17, 2012.
In that case, the parties agreed to continue to jointly own two income producing properties post-divorce. Citing discord with her former husband over the properties’ management, plaintiff moved to modify the divorce agreement and partition the properties. The parties’ divorce agreement named a property manager for the properties and even had a process if that manager no longer was to act in that role. The trial judge denied the motion finding that the divorce agreement "… was entitled to respect and should not be modified on the basis of circumstances that the
parties’ contemplated or could foresee when they executed the agreement." This is consistent with the law and also consistent with the general notion that equitable distribution is not modifiable.
In addition, when people own property jointly, if there is a dispute in the future, typically, one or both can seek partition to separate themselves from each other. However, as the court noted here, the right to partition is not absolute and can be bargained away – which is what the court found happened here.
So what is the moral of the story here? Parties should be very careful about agreeing to joint ownership of businesses or anything else post-divorce. Moreover, they should build in dispute resolution procedures and should also consider procedures allowing them the ability to extricate themselves from the situation if they no longer can co-own the property in an agreeable manner.
Eric Solotoff is the editor of the New Jersey Family Legal Blog and the Co-Chair of the Family Law Practice Group of Fox Rothschild LLP. Certified by the Supreme Court of New Jersey as a Matrimonial Lawyer and a Fellow of the American Academy of Matrimonial Attorneys, Eric practices in Fox Rothschild’s Roseland, New Jersey office though he practices throughout New Jersey. You can reach Eric at (973)994-7501, or firstname.lastname@example.org