Dividing a couple’s assets during a divorce is almost always a complicated endeavor. Courts must consider money an individual brought into the marriage, money and assets acquired during a marriage, and how to split up physical property like a home and vehicles. When a couple owns a business together, this becomes immensely more complicated, as a recent decision by the Wisconsin Court of Appeals illustrates. Rarely can a family-owned business be neatly divided between two ex-spouses without some sort of issue arising.
In In Re The Marriage of Haley v. Haley, Patrick Haley and Anna Haley decided to divorce after 12 years together. During the time that they were married, they owned and operated a company called IPS-CareFree Enzymes, which provided various enzyme products to companies and consumers. While running the business, Patrick invested in a new product that removed certain enzymes from pools and spas with a hose-mounted sprayer. He received a patent for this device and licensed use of the product out to different companies.
When Anna and Patrick divorced, they negotiated a Marital Settlement Agreement and a separate Supplemental Business Agreement to cover the division of their company. Under the SBA, the two ex-spouses divided up their former customers and decided that they could not cross-solicit from each other’s customers. Per the SBA, both parties were entitled to use and market all of the products created by the Company, including the product that Patrick patented. Several years later, Anna’s new company, now named Auraco, began advertising products for sale, including the patented product. Patrick sent a letter to Anna to demand she stop selling the patented products. He then moved to reopen divorce proceedings to clarify the extent to which Anna could sell the patented products. Anna sought the same clarification.
When the divorce proceedings were reopened, Anna argued that the SBA clearly contemplated that the business would be split in half, equally, and that both parties had the right to continue to sell company products, including the patented product. She further argued that the fact that Patrick actually held the patent did not change this. The divorce court agreed, finding that both parties could sell company products. Patrick moved for reconsideration, which was denied, and Patrick appealed.
On appeal, Patrick argued for the first time that Anna clearly knew that the SBA was not meant to give her a license to sell patented products because she had previously offered him a version of the SBA that granted her such a license, and he rejected it. The Court of Appeals rejected this argument, finding that it was not new evidence but something that could have been raised by Patrick earlier in the proceedings. Moreover, the Court of Appeals noted that it was clearly the parties’ intent in the divorce to divide the business in half, and while Patrick retained the patent, the parties contemplated that each party’s 50 percent of the company would include the ability to sell any products that the original company had owned, including patented products. The Court of Appeals therefore upheld the lower court’s determination that Anna had the right to sell patented products.
Dividing up a family business in a divorce means dividing up not only past income but also the prospect for future income, which can be very difficult for divorcing couples. Ex-spouses may have invested years of effort into getting their business up and running and be invested in seeing it continue to succeed. Rarely does the complete division of a company between two ex-spouses go off without a hitch, and many couples find it more reasonable to have one partner take the business, while the other receives cash compensation for his or her share.
If you are considering divorce and have the added complexity of a family business, you should discuss your options and how to structure your divorce with an experienced Milwaukee divorce attorney as soon as possible. To speak with a knowledgeable divorce lawyer today, do not hesitate to contact the law offices of Reddin & Singer, LLP online or give us a call at 414-271-6400.