You own a business with a partner. Your partner, however, has another partner: their husband or wife. If that husband-and-wife partnership results in divorce, you can expect to be sucked into the divorce process…but you have a very powerful defense mechanism that can keep you and your business safe. This article explains how to get out of an Illinois divorce if you are included as a third party.
Can A Business Partner Be Made A Third Party In An Illinois Divorce?
Family law courts in Illinois can include almost anyone.
“The court may join additional parties necessary and proper for the exercise of its authority under this Act.” 750 ILCS 5/403(d)
But, wait! You’re just a business partner. You have nothing to do with this divorce. Domestic relations courts aren’t limited to making decisions just about domestic relations issues.
“The trial court judge in a domestic relations division has jurisdiction to hear all issues that are justiciable in nature.” In re Marriage of Devick, 735 NE 2d 153 – Ill: Appellate Court, 2nd Dist. 2000
“[A] circuit court is a court of general jurisdiction” Steinbrecher v. Steinbrecher, 197 Ill. 2d 514, 530 (Ill. 2001)
Illinois domestic relations courts are limited to issuing orders only to people who are properly included in the divorce case. That can only happen by moving the court to include a third party and properly serving the third party to secure personal jurisdiction over that third party.
“Personal jurisdiction refers to the court’s power to bring a person into its adjudicative process.” People v. Castleberry, 43 NE 3d 932 – Ill: Supreme Court 2015
What are a non-party’s rights in an Illinois divorce? Personal jurisdiction is not the only kind of necessary jurisdiction, you may be able to advise the court to leave you out of this divorce because of a lack of subject matter jurisdiction.
Business Partners And Subject Matter Jurisdiction In An Illinois Divorce
A court must have personal jurisdiction over a third party and subject matter jurisdiction over the matter at issue that involves the third party.
“Subject matter jurisdiction refers to a court’s power to hear and determine cases of the general class to which the proceeding in question belongs.” People v. Castleberry, 43 NE 3d 932 – Ill: Supreme Court 2015
While an Illinois divorce court can hear any kind of issue, they are still limited by the constraints of the statute.
“A court’s [subject matter] jurisdiction in a dissolution of marriage action is conferred only by statute, and it must act within the statutory grant and may not rely upon its general equity powers.” In re Marriage of Foran, 225 Ill. App. 3d 756, 758 (Ill. App. Ct. 1992)
If you are a business partner who has been included in your business partner’s divorce there must be some allegation that you and the business partner own an asset that could be deemed marital property under 750 ILCS 5/503.
First, Illinois divorce courts must determine what is marital property and what is not.
“The court shall make specific factual findings as to its classification of assets as marital or non-marital property, values, and other factual findings supporting its property award.” 750 ILCS 5/503(a)
Marital property is divisible in an Illinois divorce.
“‘[M]arital property’ means all property, including debts and other obligations, acquired by either spouse subsequent to the marriage” 750 ILCS 5/503(a)
“For purposes of distribution of property, all property acquired by either spouse after the marriage and before a judgment of dissolution of marriage or declaration of invalidity of marriage is presumed marital property.” 750 ILCS 5/503(b)
Non-marital property is not divisible in an Illinois divorce.
“[T]he court shall assign each spouse’s non-marital property to that spouse.” 750 ILCS 5/503(d)
Based on your business’s operating agreement, the business or aspects of the business (especially the cash) may not be marital and, thus, divisible asset.
“If the shareholder spouse controls the corporate distribution, the retained earnings are marital property…Because, [a business partner spouse] was unable to authorize a payment of the retained earnings as a dividend without shareholder approval and because the earnings were a corporate asset, we hold that the retained earnings account of the corporation is a nonmarital asset.” In re Marriage of Joynt, 874 NE 2d 916 – Ill: Appellate Court, 3rd Dist. 2007
If the business cannot pay profits based exclusively on the divorcing business partner’s command, those profits are not marital…they belong to the business.
If the business or the business’s assets are deemed non-marital, an Illinois divorce court has no jurisdiction under the Illinois Marriage and Dissolution of Marriage Act.
Determining The Value Of The Business Does Not Require Business Partners To Be Included In The Illinois Divorce.
While the business’s profits might be non-marital, if the business was acquired during the marriage, the business itself is marital and thus divisible. Well, that’s half true.
The business itself will not likely be divided between the two divorcing spouses. The spouse who actually works in the business will inevitably be awarded the business.
“[W]hen the property at issue is a small business and the parties have shown that they cannot work together, it is better to award the business solely to one party or the other.” In re Marriage of Thomas, 608 NE 2d 585 – Ill: Appellate Court, 3rd Dist. 1993
Furthermore, closely held businesses usually only allow transfers of stock between partners. Closely held businesses usually have “stock restriction” clauses in their operating agreements that forbid transfers of ownership to non-current owners. An Illinois divorce court cannot order a transfer in violation of the express terms of a business’s operating agreement.
“[A] transfer of stock ordered by the court in a marriage dissolution proceeding is an involuntary transfer not prohibited under a corporation’s general restriction against transfers unless the restriction expressly prohibits involuntary transfers.” In re Marriage of Devick, 735 NE 2d 153 – Ill: Appellate Court, 2nd Dist. 2000) (citing In re Marriage of Banach, 489 NE 2d 363 – Ill: Appellate Court, 2nd Dist. 1986)
Hopefully, you have an operating agreement that includes an express bar against transfers of ownership to third parties.
The portion of the business the business partner owns can and, likely, will be awarded to the business-owning spouse but the court must make a finding of value for that business. “The court shall make specific factual findings as to its classification of assets as marital or non-marital property, values, and other factual findings supporting its property award.” 750 ILCS 5/503(a)
An Illinois divorce court will then “divide the marital property without regard to marital misconduct in just proportions” 750 ILCS 5/503(d)
The divorcing business owner’s spouse will be awarded marital assets of a comparable value to the determined value of the divorcing business owner’s share of the business.
The other business partners at this point should say “what do you need me for? Just determine the value of the business and divide up everything else. I am no longer an “additional part[y] necessary and proper for the exercise of its authority under this Act.” 750 ILCS 5/403(d)
Point out to the judge that you will faithfully answer all subpoenas to help determine the value of the business but, as a business partner, you do not need to be part of the divorce itself.
Tortious Interference With A Business Relationship Within An Illinois Divorce
If your business partner’s spouse has dragged you into the divorce you now know from the above that there is no fundamental reason to include you as a party to the divorce. What they are really doing is applying pressure to their spouse by threatening the business. This is unacceptable and it’s actionable!
Inclusion of a business partner in a divorce can may give that business partner grounds to file their own complaint for tortious interference with business.
“One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person, by preventing the other from performing the contract or causing his performance to be more expensive and burdensome, is subject to liability to the other for the pecuniary loss resulting to him.” Restatement (Second) of Torts (1979) Section 766A
The spouse that included you in the divorce is intentionally and improperly (see my above explanation for why inclusion is improper) interfering with the contract between you and your partner. Specifically, it’s making the operation of your business “more expensive” and more “burdensome”.
While section 766A of the Second Restatement of Torts is perfect for this scenario, the Second Restatement of Torts is not adopted wholesale by Illinois courts. You will probably also have to file a claim for prospective economic advantage against the spouse that included you in this divorce.
“[T]o prevail on a claim for tortious interference with a prospective economic advantage, a plaintiff must prove: (1) his reasonable expectation of entering into a valid business relationship; (2) the defendant’s knowledge of the plaintiff’s expectancy; (3) purposeful interference by the defendant that prevents the plaintiff’s legitimate expectancy from ripening into a valid business relationship; and (4) damages to the plaintiff resulting from such interference.” Fellhauer v. City of Geneva, 568 NE 2d 870 – Ill: Supreme Court 1991
You have a future expectation of an ongoing valid business relationship with your business partner. The spouse that included you in their divorce knows that their spouse has a valid business interest with you. The spouse that included you in the divorce did so to sow discord between you and your business partner, there is resultant damage to your business relationship caused by this discord.
It’s not as elegant as the claim for tortious interference with a business relationship but it has the same point “get me out of this divorce. I am not married to these people.”
In my 19 years of legal practice, I have seen business partners dragged into divorce cases (sometimes I was the one that dragged them). Are you being included in an Illinois divorce when you are not even married to the people getting a divorce? Contact my Chicago, Illinois family law firm today to speak with an experienced Illinois divorce attorney.
