When you are married to someone you have a lot of mutual responsibilities to each other. It is up to you both to resolve those responsibilities. If you cannot resolve your mutual responsibilities, you file for divorce and, in Illinois, the Illinois Marriage and Dissolution of Marriage Act outlines what happens as you dissolve your relationship.
You or your spouse may, however, have other relationships that invoke mutual responsibilities. If you or your spouse have business partners, there is a fiduciary duty between the business partners.
It is not uncommon for a divorce between a married couple to coincide a “divorce” between one member of the couple and their business partner(s). As someone’s personal life crumbles, often their professional life collapses as well.
Business Divorce And Fiduciary Duty In Illinois
The division of a business by business partners, a “business divorce,” does not follow always follow a statute, business divorces follow the operating agreement (which is like a prenuptial agreement for a business).
Businesses rarely unwind unless there has been some breach of trust between the parties due to fraud or negligence. After, all, why not keep a good thing going?
The operating agreements rarely contemplate a horrendous act of fraud or negligence which would necessitate a business divorce. The common law tort of breach of fiduciary duty allows the aggrieved business owner to identify the fraud and receive compensation from their former business partner.
When a business owner breaches “a legal or equitable duty arising out of a fiduciary relationship, a presumption of fraud arises….This type of fraud is called ‘constructive fraud.” Vermeil v. Jefferson Trust and Savings Bank of Peoria, 176 Ill. App. 3d 556, 564 (1988).
To prove constructive fraud, a party must demonstrate “(1) a fiduciary relationship; (2) a breach of the duties that are imposed as a matter of law because of that relationship; and (3) damages.” Kovac v. Barron, 2014 IL App (2d) 121100, ¶ 64 (citing Lawlor v. North American Corporation of Illinois, 2012 IL 112530, ¶ 69)
Significantly, “[c]onstructive fraud can arise only if there is a confidential or fiduciary relationship between the parties.” Prodromos v. Everen Securities, Inc., 341 Ill. App. 3d 718, 726 (2003).
The business partner must establish that there was a fiduciary relationship.
“Illinois law recognizes two types of fiduciary relationships—fiduciary relationships as a matter of law and fiduciary relationships as a matter of fact.” Shrock v. Meier, 2024 IL App (1st) 230069
A fiduciary relationship as a matter of law arises “from the existence of a particular relationship, such as an attorney-client or principal-agent relationship.” (Internal quotation marks omitted.) Miller v. Harris, 2013 IL App (2d) 120512, ¶ 21
Business partnerships are almost always fiduciary relationships as a matter of fact. For example, Business Partner A would do the books and take the sales calls while Business Partner B would do the actual paid-for service.
A fiduciary relationship as a matter of fact comes about when “one party reposes trust and confidence in another, who thereby gains a resulting influence and a superiority over the subservient party.” Miller v. Harris, 2013 IL App (2d) 120512, ¶ 21 (quoting Khan v. Deutsche Bank AG, 2012 IL 112219, ¶ 58))
This somewhat amorphous concept of suing a former business partner for a breach of fiduciary duty can bleed into that former business partner’s divorce.
Former Business Partners As Third Parties In An Illinois Divorce
Business divorces, if not agreed, will have former partners suing each other. Meanwhile, the fraudulent business partner may be getting divorced thereby transferring half of the fraudulent business partner’s assets to the soon-to-be ex-spouse.
The aggrieved business partner does not want to see their potential damages award safely tucked away in his former business partner’s ex-spouse’s bank account.
To get adequate compensation from the divorcing business partner’s marital estate, the aggrieved business partner can include themself in the fraudulent business partner’s divorce case.
“The court may join additional parties necessary and proper for the exercise of its authority under this Act.” 750 ILCS 5/403(d)
Once included in the divorce case, the aggrieved business partner can state a claim of breach of fiduciary duty against their former partner AND their soon-to-be-ex.
The soon-to-be-ex may be deemed a third party who had a fiduciary duty to the aggrieved business partner but only under very narrow circumstances.
“Illinois law does not recognize a method of imputing a fiduciary duty onto a third party. Instead, there are various causes of action that plaintiffs can bring against nonfiduciaries for their involvement in the unlawful acts of fiduciaries” Shrock v. Meier, 2024 IL App (1st) 230069
To get at the fraudulent business partner’s spouse the aggrieved business partner must make specifically plead that a third party spouse induced a breach of fiduciary duty
“A third party who induces a breach of a trustee’s duty of loyalty, or participates in such a breach, or knowingly accepts any benefit from such a breach, becomes directly liable to the aggrieved party.” Village of Wheeling v. Stavros, 89 Ill. App. 3d 450, 455 (Ill. App. Ct. 1980)
If the third party spouse didn’t have the idea for the breach of fiduciary duty, perhaps the third party spouse went along with the breach sufficient to be found that they aided and abetted the breach?
To prove that a third party “aided and abetted [a] breach of [a business partner’s] fiduciary duty…plaintiff must sufficiently allege that (1) [The business partner] performed a wrongful act causing injury, (2) [the third party] was aware of its role in [the business partner’s] misconduct at the time it provided assistance to him, and (3) [the third party] knowingly and substantially assisted [the business partner] in the violation.” Praither v. Northbrook Bank & Tr. Co., No. 1-20-1192, 16 (Ill. App. Ct. 2021)
Or a very sophisticated argument could be made that the soon-to-be-ex-spouse was in a conspiracy with the fraudulent business partner the whole time.
“Illinois recognizes civil conspiracy as a distinct cause of action. Civil conspiracy is defined as a combination of two or more persons for the purpose of accomplishing, by some concerted action, either an unlawful purpose or a lawful purpose by unlawful means. The function of a civil conspiracy claim is to extend liability in tort beyond the active wrongdoer to those who have merely planned, assisted or encouraged the wrongdoer’s acts…. To state a claim for civil conspiracy, a plaintiff must allege an agreement and a tortious act committed in furtherance of that agreement. The gist of a conspiracy claim is not the agreement itself, but the tortious acts performed in furtherance of the agreement. Civil conspiracy requires proof that a defendant knowingly and voluntarily participates in a common scheme to commit an unlawful act or a lawful act in an unlawful manner. Further, once the conspiracy is formed, all of its members are liable for injuries caused by any unlawful acts performed pursuant to and in furtherance of the conspiracy. In summary, to prevail on a theory of civil conspiracy, a plaintiff must plead and prove (1) the existence of an agreement between two or more persons (2) to participate in an unlawful act or a lawful act in an unlawful manner, (3) that an overt act was performed by one of the parties pursuant to and in furtherance of a common scheme, and (4) an injury caused by the unlawful overt act.” Lewis v. Lead Indus. Ass’n, Docket No. 124107, 7 (Ill. 2020)(quotations and citations omitted)
Soon-to-be-ex-spouses have a ready-made excuse to any of these accusations. “Induce him? Aid and Abet him? Enter into a conspiracy with him? I’m divorcing him for the same reason your divorcing him from your business. I don’t trust him!”
Furthermore, the damages caused by the breach of fiduciary duty were caused by the fraudulent partner and should be allocated to the fraudulent partner in the divorce.
An Illinois divorce court “shall divide the marital property [and debts] without regard to marital misconduct in just proportions considering all relevant factors, including:
(1) each party’s contribution to the acquisition, preservation, or increase or decrease in value of the marital or non-marital property” 750 ILCS 5/503(d)(1)
Giving the spouse of a fraudulent business partner any responsibility for the fraudulent activity is simply unfair to all parties.
“The statute’s objectives are twofold. First, the disposition should recognize the contribution of each party to the marriage and should compensate that party. Second, the distribution should place each party in a position to begin anew.” In re Marriage of Agazim, 530 NE 2d 1110 – Ill: Appellate Court, 2nd Dist. 1988 (citations omitted)
If your spouse is tied up in other lawsuits while you are trying to divorce them in Illinois, contact my Chicago, Illinois family law firm today to speak with an experienced Illinois family law attorney.