The summer 2003 issue of The Art of Licensing contained an article entitled "Mixing Business with Marriage" about couples
who work together, describing one wonderful relationship after another and ending with one couple referencing "afternoon delight."
But as a lawyer, I often find myself playing the spoiler, particularly in view of the fact that 50 percent of all marriages
end in divorce. Divorces are difficult enough when they deal with children, marital homes, visitation, splitting up the furniture,
alimony, friends, family, and the family dog, but when a couple also works together, it makes a difficult situation even more
complex. Business partnerships are in many ways like marriages, so, in a sense, when a couple who works together gets divorced,
they are really getting divorced twice.
Divorce law has changed a great deal over the last generation. The courts, for better or worse, have recognized the fact that
most families are two-income families and both parties contribute in different yet substantial ways to the accumulation of
the family's assets. The contributions to the family unit are both financial and indirect. Today, most jurisdictions ignore
whose name assets are in (title) when assessing ownership, or if they are among the states that cannot transfer title of property
in a divorce proceeding, balance out the equities through the transfer of other assets. Also, the days of life-long alimony
are long gone for most couples.
Property Distribution There are two types of legal theories behind the distribution of property in a divorce in the U.S.: community property and
equitable distribution. The majority of the states follow the equitable distribution process, in which the courts endeavor
to equitably distribute the assets so each party obtains roughly the same value of marital assets. But the devil is in the
details, i.e., who gets which assets. Community property states such as Arizona, California, Idaho, Louisiana, Nevada, New
Mexico, Texas, Washington, and Wisconsin have a much more rigid division policy of splitting assets down the middle.
In most equitable distribution jurisdictions, the courts and statutes do not consider property acquired before the marriage
such as gifts and inheritance to be marital property subject to division in a divorce-unless they have been made "a gift to
the marriage" or they have been commingled in a way in which they lose their individual identity. Therefore, if someone were
running a licensing business before the marriage in his or her own name, upon divorce, the licensing business probably would
remain his or hers. However, if the value of the business increased during the period of the marriage, a court might consider
the appreciation in value of the business that accumulated during the course of the marriage to be a marital asset even if
the underlying business were not. The spouse who "owns" the business may still have to pay the other spouse his or her share
of the business' appreciation. If marital assets were used to help improve or grow the business, the whole business might
be transformed into marital property, even though it's still in only one spouse's name.
What about the scenario in which the licensing business was owned and run by two partners who, during the course of working
as business associates, fell in love and married? All things being equal, the business would properly become marital property.
But what if the parties had a premarital partnership agreement in which they determined not to have equal ownership of the
business? The question becomes: Will the court honor the partnership agreement rather than equitably dividing the property
as if it were straight marital property? For instance, if the partnership agreement stated that the business was owned 80/20,
would that ratio prevail in a divorce proceeding? Since divorce is based on state law, even in states that follow "equitable
distribution" philosophy, the rulings in matters such as these very likely could produce different answers in various states.
Another potential situation that could arise is if one person were an employee and had an employment agreement and then the
couple married. How would the employment agreement be viewed vis-a-vis is an equitable distribution in the case of a divorce?
Today, many couples sign antenuptial (or prenuptial) agreements outlining the division of assets, particularly pre-existing
assets. But what if after the marriage, a business that was owned and run by just one spouse and covered by an antenuptial
agreement is joined by the other spouse? While antenuptial agreements are honored and recognized by the courts, the fact that
the other spouse now has become a partner in the business might have an impact on the enforceability of the antenuptial agreement.
Again, state law would determine whether or not the antenuptial agreement would trump the post-marriage interest developed
in the business.
One circumstance often found in the art world is where one spouse starts an art-related business (as an artist, publisher,
or agent) and the other spouse wants nothing to do with this endeavor, even going so far as to criticize or demean the artwork
or business. Then, when divorce time comes, the uninvolved party suddenly discovers the virtues and value of the artwork or
art-related business and seeks to put a high price tag on them. Why? The spouse expects that the art-involved member of the
family will want to keep the works or business he or she has worked so hard to build. The higher the value put on the art
or art-related business, the more of the other marital assets the non-art spouse gets to keep (i.e., the house, furniture,
etc.) in order to achieve the "equitably balanced division of assets."
