A family business can be truly a great thing as all profits “go into one pot.” However, if a divorce regretfully becomes imminent, it is highly unlikely that the two spouses will be able to run the business together. In my nearly 20 years of experience as a New Jersey divorce and family attorney, I have found that the more intricately involved the two spouses are in running the business, trouble certainly lies ahead. The New Jersey Appellate Division case of Moriello v. Moriello is a great example as to why you should never agree to stay in business with your ex-spouse.
In the Moriello case, the parties were divorced in 2006 after being married for over thirty years. They entered into a Property Settlement Agreement (PSA), which stated in relevant part that they became joint tenants without rights of survivorship of a sixteen-unit apartment building and a rented single family home. Pursuant to the PSA, the wife would receive $3000 per month of the net income from the properties in lieu of alimony and the husband would receive the next $3000 a month in net income. Furthermore, the agreement stated that any net income over $6000 was to be split by the parties.
Shortly after the PSA was enacted though, the parties began to disagree on how to manage the properties. The wife insisted that her former husband had subjected her to extreme verbal abuse that made it virtually impossible to handle the former marital business together. The constant belittling and yelling prompted the wife to file a motion with the court to partition (to divide the real estate into separate yet equal segments) the properties and to require her former husband to buy her out or sell to a third party. In the event that he chose to sell the properties to a third party, the wife demanded that the proceeds be split equitably and also that she be paid $3000 a month in alimony. The husband opposed the motion.
On March 30, 2011, the trial Judge denied the wife’s motion to modify the PSA. He stated that the agreement should be treated with respect and should not be modified on the basis of the alleged changed circumstances. Furthermore, the judge rejected the wife’s argument that she had an absolute right to have the properties partitioned. He stated that the parties agreed not to partition the properties in the PSA and that the wife failed to show changed circumstances rendering the PSA unfair. The wife appealed.
On appeal, the wife argued that her former husband’s refusal to cooperate civilly and professionally with her with respect to managing the properties constituted a change of circumstances. Therefore, she alleged that the lower court erred in denying her relief. However, the New Jersey Appellate Division affirmed the findings of the lower court. The court held that the wife did not have the absolute right to have the properties partitioned. Additionally, it stated that the trial judge correctly determined that the circumstances had not changed enough to warrant overriding the parties’ agreement not to partition the properties. The husband and wife agreed to be joint owners in the property after their divorce was final and should have known the consequences that might follow.
Ultimately, the lesson to be learned from Moriello is to not stay in business with your former spouse once you get a divorce. If you or a loved one finds themselves in such a situation, please never hesitate to contact my office. Thank you.