• Divorce and the Family Business- To Join, or Not to Join?
  • March 18, 2011 | Author: Carolyn Delizia Swift
  • Law Firm: Luis E. Insignares, P.A. - Fort Myers Office
  • Married couples have been deriving a significant amount of the marital estate from family businesses since the existence of both marriage and business!  With the advent of the legal fiction that a business could constitute a separate legal entity, the question has arisen to what extent, if any, a business can or should be joined as a party to a dissolution-of-marriage action.


     To a certain extent, the question of joining a family-owned or other small business as a party in a divorce suit is merely a subset of the broader question of whether any third party, other than the spouses themselves, should be joined.  Since the two spouses are clearly the primarily important parties in any dissolution-of-marriage case, see, Chaachou v. Chaachou, 118 So.2d 73 (Fla. 3d DCA 1960) (corporations joined as parties could not plead wife’s adultery as defense to claims against corporations), Florida courts have limited the circumstances under which any third party may be joined in a dissolution-of-marriage action.


     The general rule applicable to such joinder is that when the legal and property rights of third parties are sought to be actually adjudicated in a divorce action, such third parties must be joined as parties.  See, e.g., Picchi v. Picchi, 100 So.2d 627 (Fla. 1958) (where court, in divorce action, determines spouses' property rights, it is proper to bring in any third-party claimants to property in which spouses claim interest); Matajek v. Skowronska, 927 So.2d 981, 985 (Fla. 5th DCA 2006) (trial court lacked jurisdiction to adjudicate property rights regarding apartment complex in dissolution proceedings; apartment complex was titled in names of ex-husband and his son, but ex-wife neglected to join son as party to dissolution; “On remand, the court may consider the establishment of an equitable lien only if the Former Husband's son is noticed and joined.”); Barabas v. Barabas, 923 So.2d 588 (Fla. 5th DCA 2006) (finding that trial court lacked jurisdiction to adjudicate property rights of husband's mother, who was non-party, when deciding whether parcel of real property was marital property and thus subject to equitable distribution); Lallouz v. Lallouz, 695 So.2d 466, 468 (Fla. 3d DCA 1997) (reversing, in dissolution-of-marriage action, trial court’s denial of wife’s claims for equitable relief against husband’s mother as to real property titled in husband’s mother’s name, including claims for resulting and constructive trust as to real property located in Broward County; holding that although property was located in Broward County, trial court had in personam jurisdiction to determine equitable rights of parties, including determination as to which of parties in case, including husband’s mother, was entitled to property); Ray v. Ray, 624 So.2d 1146, 1148 (Fla. 1st DCA 1993) (reversing equitable lien trial court imposed on certain nonmarital property former husband owned with his brother and mother for purposes of securing $70,000 debt; “The rule is clear that the trial court [in a divorce proceeding] does not have jurisdiction to adjudicate property rights of non-parties.”) (bracketed material in original).


     When the third party whose joinder is being considered is a small or family-owned business, there may be some question to what extent such business really is a “third” party.  Even when the business is set up as a corporation, as opposed to a sole proprietorship or partnership, it is common for small or family-owned businesses to ignore the formalities of corporate existence.  See, e.g., Lamoureux v. Lamoureux, 157 Fla. 300, 303, 25 So.2d 859, 860 (1946) (“corporation was a mere matter of convenience for . . . transaction of . . . dry cleaning business”).  In such cases, the payee spouse may seek to join this corporate entity by asserting that it is the alter-ego of the payor spouse.  The law is clear that a spouse's corporation cannot be joined in marital litigation unless the other spouse has an independent claim against the corporation or claims specific relief against it.  Rosenberg v. North American Biologicals, Inc., 413 So.2d 435 (Fla. 3d DCA 1982).  Mere allegations that the corporation is the alter-ego of the spouse are not enough to join the corporation:


    Appellant next argues that the trial court erred when it awarded appellee funds from the sale of a building he owned with the two other stockholders of Sandstrom & Hodge, Inc. Appellant contends the award is improper because (1) the building was not a marital asset and its value did not appreciate during the marriage; and (2) appellee had never filed a claim against the corporation and the corporation was never a party to the dissolution proceedings. Appellee only asserted that the corporation and appellant were one and the same. We hold that this allegation, without more, is insufficient to affirm this award.

    Sandstrom v. Sandstrom, 617 So.2d 327, 328 (Fla. 4th DCA 1993) (footnote omitted). 
    In Ashourian v. Ashourian, 483 So.2d 486, 487 (Fla. 1st DCA 1986), the court held that the wife's petition failed to state a cause of action against the husband's corporations, and therefore the wife could not properly join such corporations:


    The wife's counterpetition does not allege a special equity in any corporate property but merely alleges a claim against the husband's stock ownership in the corporations. ¿ The cases relied upon by the wife for joinder are distinguishable. In Rosenberg v. North American Biologicals, Inc., 413 So.2d 435 (Fla. 3d DCA 1982), the wife alleged in her complaint that the corporate defendant had illegally watered down the wife's stock ownership in the defendant corporation in favor of the husband. If these allegations were true, the wife was entitled to relief against the corporation. Contrarily, the wife's counterpetition in this case states no cause of action against the corporations, nor does it seek specific relief against them. ¿ Here, the trial judge correctly determined that the wife's general allegations of a special equity in the husband's business enterprises do not justify joinder of the corporations. 

     

    (Footnote omitted).  See also, Good v. Good, 458 So.2d 839 (Fla. 2d DCA 1984) (where no evidence was presented that justified piercing of corporate veil, corporation could not be party to marital litigation), rev'd on other grounds, 481 So.2d 34 (Fla. 1985); see also, De Armas v. De Armas, 471 So.2d 184 (Fla. 3d DCA 1985) (error to award wife interest in duplex owned solely by husband's father); Feldman v. Feldman, 390 So.2d 1231 (Fla. 3d DCA 1980) (court  may order husband to transfer stock, but cannot order corporation to transfer assets to wife unless corporation is made a party to litigation); Couture v. Couture, 307 So.2d 194 (Fla. 3d DCA 1975) (same); Noe v. Noe, 431 So.2d 657 (Fla. 2d DCA 1983) (divorce court could not award automobile, titled in corporation, to wife, without joinder of corporation); Keller v. Keller, 521 So.2d 273 (Fla. 5th DCA 1988) (same); Thoni Transport Co. v. Thoni, 155 So.2d 838 (Fla. 3d DCA 1963) (seven corporations joined as parties by wife should have been dismissed where only relief sought as to them was injunction to keep husband from selling their assets); St. Anne Airways, Inc. v. Webb, 142 So.2d 142 (Fla. 3d DCA 1962) (corporation should have been allowed to intervene as party where wife sought to have corporation’s rental income paid to her attorney).


     The proceeding case law raises additional sub-issues.  Since Ashourian, supra, a leading case regarding business joinder, is posited in terms of the payee spouse seeking a “special equity” in the payor’s “business enterprises,” a potential question is posed by the recent amendment to the equitable-distribution statute that abolished special equity.  See, § 61.075(11), FLA. STAT. (2009).  That question is whether the statute’s amendment has any effect on the rule announced in Ashourian.


     Ashourian itself has not been cited since special equity was abolished effective July 1, 2008.  Thus, it is debatable whether the abolishment of special equity will have any effect on the joinder rules announced in cases like Ashourian, and if it does have some effect, what that effect will be.  While some commentators have made the point that “the statutory amendment abrogating special equity is not just a semantics change,” Nicole L. Goetz & David L. Manz, A Brave New Frontier:  The Equitable Distribution 2008 Legislative Changes, 82 FLA. BAR J. 58 (Dec. 2008), it appears that the statutory change has not affected the rules on joining business entities in divorce actions.  See, e.g., American Univ. of the Caribbean v. Tien, 26 So.3d 56 (Fla. 3d DCA 2010) (wife who brought dissolution-of-marriage action was not entitled to ex parte temporary injunction preventing three foreign companies owned in whole or in part by husband from accessing certain funds contained in Florida bank accounts; no immediate or irreparable injury would have resulted without entry of injunction, as funds were then under control of federal court-appointed receiver, no basis was asserted for piercing corporate veil or joining companies in dissolution action, and there was no showing that husband had taken any step toward dissipation of companies’ assets).


     A further issue raised by Sandstrom, supra, in which the payee spouse “only asserted that the corporation and [payor souse} were one and the same,” 617 So.2d at 328, is what additional allegations might be necessary to properly allege an “alter ego” basis for joinder of a corporation.  The leading case on “piercing the corporate veil” is Dania Jai-Alai Palace, Inc. v. Sykes, 450 So.2d 1114 (Fla. 1984).  Under Dania Jai-Alai, the corporate veil can only be pierced on allegations and proof of “improper conduct,” 450 So.2d at 1116, 1117, 1121, such as the corporation having been “organized or employed to mislead creditors or to work a fraud upon them.”  Id. at 1120, citing, Advertects, Inc. v. Sawyer Industries, Inc., 84 So.2d 21, 23 (Fla. 1955).


     In Hoecker v. Hoecker, 426 So.2d 1191 (Fla. 4th DCA 1983), a case distinguished in Sandstrom, the wife sued the husband and his corporation, essentially alleging a 50% special equity in the corporation.  The trial court dismissed the corporation as a party, but the Fourth DCA reversed.  The court noted the following factors as being sufficient for the wife to keep the corporation in the suit:  The parties owned the real estate jointly on which the corporation (a restaurant) did business and the corporation was financed in part by loans generated from mortgages on that property; "[t]he parties' course of conduct demonstrates a blending of marital and business partnerships"; both parties had access to corporate checkbooks and paid both corporate and personal expenses from them; the husband paid for trips to Nassau and Las Vegas from corporate funds; the wife's car was purchased and maintained by the corporation; and husband admitted, "I am the company."  426 So.2d at 1192.


     The Hoecker court went on to state that because of the “intertwining nature of [wife's] claims against [husband] and the corporation,” the corporation was properly joined, and it was error to dismiss it as a party.  426 So.2d at 1192 (bracketed material added for clarity).  See also, Johnson v. Johnson, 454 So.2d 797 (Fla. 4th DCA 1984) (wife worked as bookkeeper in husband's family corporation for ten years without salary and therefore claimed special equity; wife's motion to join corporation should have been granted).  See also, Picchi v. Picchi, supra (joinder of two corporations proper where wife alleged corporations were mere alter egos of her husband, who had allegedly entered into scheme to defraud wife of her interests in jointly owned real estate by conveying property to corporations).


     Although the Sandstrom court, in holding a payee spouse’s mere “alter ego” allegations insufficient to pierce the corporate veil so as to make joinder proper, did not cite to Dania Jai-Alai, cases favoring joinder based on veil-piercing, like Hoecker and Picchi (which pre-date Dania Jai-Alai), should be relied upon only in conjunction with the requirements of Dania Jai-Alai.  Case law indicates that the Dania Jai-Alai requirements will be applied to divorce cases in which a spouse seeks to join a corporation on a veil-piercing basis.  See, American Univ. of the Caribbean v. Tien, supra 26 So.3d at 59 (citing Dania Jai-Alai).