Anyone who has been through a divorce probably already knows that it can be a stressful, complicated, and emotionally and financially draining experience. The legal issues involved may be even more complex in situations where the couple work together running a business. In In re Marriage of Greaux and Mermin, California’s First District Court of Appeals explains that the spouse who is ultimately awarded the business has the right to protect it from being devalued by the other spouse. In some cases, that may include seeking a court order to stop the spouse from starting a competing business.
In this case Wife filed for divorce in 2009. During the six-day trial that occurred two years later, one of the few remaining disputed and unresolved issues was what to do with the beverage company they owned and jointly operated during the marriage. The company distributed and sold a type of rum.
The business was community property and the judge determined that both spouses brought “unique talents to it.” Husband had little education, training, or experience running a business, but the judge said his considerable effort and determination were “crucial” to the business’ success. Husband also developed relationships with others in the industry whose experience and personal relationships were very helpful to the business. Wife, on the other hand, had marketing and sales skills also crucial to the business, and her family history in the Caribbean served as the “brand story.” The trial judge also noted that Wife had a deep understanding of the rum, its ingredients, and the process for making it, and had qualified as an official industry “taster.” She was designated in company investment materials as the “face of the brand.”
Once the marriage began to deteriorate, however, the trial court found that Wife took a number of actions that hurt the business, including filing suit to dissolve the company and suing certain key resource contacts. She also withdrew money from the company’s operating fund and told employees that the business wasn’t likely to survive. The lawsuits further damaged the company’s goodwill, according to the trial judge, by alleging that the business was on the verge of being financially insolvent.
As a result, the trial court denied Wife’s request to be awarded the company at zero value, in which she claimed that Husband had left it a mere shell. Instead, the Judge awarded the company to Husband, valued it at $49,000, and ordered him to pay Wife half of that amount. The judge also took the additional step of issuing an order restraining Wife from working in any rum-related business, anywhere, for five years.
Reversing the decision on appeal, the First District said the non-compete order violated California’s policy favoring an individual’s right to freely practice his or her chosen trade or profession. That policy, according to the Court, required that any restrictions on Wife’s freedom to work in the industry be shown to be reasonably necessary to protect the value of the business awarded to Husband. Here, the Court said the total ban appeared to be too broad, since there was no evidence regarding the geographic markets in which the business operated. “The court, therefore, abused its discretion, and the noncompetition order must be vacated,” the appeals court held.
I have no doubt that the value of the business at issue paled in comparison to the cost of this litigation. And I also suspect that the emotionally toxic and stressful litigation took a substantial toll not just on the parties, but also the business.
California divorces often raise a wide variety of complex issues, including those related to assessing and dividing community property and untangling businesses in which one or both spouses have played a role. These issues, and much of the stress that often accompanies divorce cases, can be minimized through alternatives to litigation, such as collaborative divorce and mediation. With offices throughout the San Francisco Bay Area, California divorce lawyer Lorna Jaynes provides innovative legal tools to resolve many family law disputes without the bitterness and acrimony engendered by the adversarial process.
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