In a divorce, a lot of things can be up for grabs, including a family business. But if you’re not the one who gets to keep the business, don’t assume that you can set up a competing one.
For example, when a Massachusetts couple divorced, both parties sought sole ownership of the family feed-and-grain store. The court awarded the business to the husband. The husband then asked the court to order the wife to sign a non-compete agreement, so she wouldn’t be allowed to set up a rival store and drain business from him.
The court said no, but the husband appealed, and an appeals court said the non-compete might be a good idea.
A company’s “goodwill” is a valuable business asset and should be considered property owned by the couple, the appeals court said. Therefore, a court that divides up a couple’s property can award a business’s “goodwill” to one spouse by forcing the other spouse not to start a competing business.
However, the court said a non-compete agreement can’t be overly broad and can’t foreclose the other spouse from making a living in his or her field. Therefore, a judge has to write a non-compete agreement carefully, and limit it only to the restrictions that are truly necessary to protect the viability of the business.