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Divorce Property Agreement Brings an End to Wife’s Corporate Distributions

pest_Control_service_vehicleOne couple’s divorce not only ended a personal partnership, but also a professional one, since the couple were not only husband and wife but also co-owners of a pest control business. A recent decision from the 5th District Court of Appeal ruled that, when the couple agreed as part of their divorce that the husband would buy out the wife’s interest in the business, that agreement ended the wife’s right to receive equal distributions from the company. The amount of the wife’s one-half interest was factored into the divorce’s property division calculations, and allowing her to continue to receive distributions would upset that balance and unfairly benefit her.

Peter and Patricia Eldridge were husband and wife and also the co-owners of Apex Pest Control, Inc. Both spouses were equal shareholders of Apex, which was a closely-held S corporation. After 25 years of marriage, the couple divorced. As part of the divorce action, the husband agreed to buy out the wife’s interest in the business. The couple also agreed to sell their marital residence.

The trial court, however, ordered that the wife remain as an equal co-owner of Apex until the couple’s house sold. Regrettably for all involved, the divorce settlement occurred in 2006, just as the recession and housing market crash took hold in Florida. An anticipated quick sale of the home took three years. Shortly before the 2009 sale, the wife returned to court to argue that she was entitled to equal distributions from the business from the date the divorce decree issued until the day the house sold. The trial court agreed and ordered the distributions, which netted the wife an amount in excess of $923,000.

On appeal, the 5th DCA reversed this ruling, concluding that the husband was not required to pay the wife the equal distributions because the couple had already agreed to an unequal distribution of Apex as part of their equitable distribution agreement. The appeals court explained that Florida law plainly allows shareholders of S corporations to agree to unequal distributions, and that was “precisely what the parties did here.”

Additionally, allowing the wife to receive the equal distributions would upset the balance struck by the original equitable distribution agreement. That agreement called for the husband to receive the business as his separate property as of 2006. Allocating 100% of Apex was a component of, and factored into, the totality of the parties’ equitable distribution scheme. The parties’ agreement called for the wife to receive payment in an amount equal to 50% of the value of the business as of 2006. This did not change simply because the court delayed consummating the transaction until the couple’s residence sold. Allowing the wife to receive additional payments on top of that would provide the wife with an unfair benefit.

The court also looked at additional behaviors by the wife as proof that she did not view herself as having an ongoing ownership interest in the business during the three years that the marital residence was up for sale. At no point during the 2006-2009 period did the wife demand additional corporate distributions, and she did not participate in the management, operation, and direction of the business. The wife’s actions made it clear that the parties had established, and accepted, a firm price for the husband’s purchase of the wife’s interest in the business.

Divorce actions can be very complicated and intricate matters, since the spouses deal with a mixture of both financial and emotional issues. When couples share ownership of business interests, this level of complexity increases substantially. For thoughtful representation in your divorce case, talk to the Florida family law attorneys at Stok Folk + Kon. Our attorneys can help you reach a divorce outcome that also protects the business interests you’ve spent an entire career building.

Contact us online or by calling (305) 935-4440 to schedule your consultation.

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Photo credit: Dwight Burdette at Wikimedia Commons.