Will my spouse be legally an owner of a company that I start just because of being my spouse?

Will my spouse be legally an owner of a company that I start just because of being my spouse?

It is possible. A nonowner spouse can be awarded a portion of the other spouse’s separate property, and separate property can include a business. The arguments go like this:

Jensen v. Jensen, 203 P.3d 1020, 1024 (Utah Ct.App. 2009):

¶ 12 A succinct summary of contribution cases is provided in Kunzler v. Kunzler, 2008 UT App 263, 190 P.3d 497, where this court addressed the wife’s argument that she was entitled to part of her husband’s separate business property because, although “she was not his partner in the business [at issue,] she was his partner in the business of marriage.”5 Id. ¶ 19 n. 5. In his partially dissenting opinion, Judge Davis discussed Dunn v. Dunn, 802 P.2d 1314 (Utah Ct.App.1990), and Elman v. Elman, 2002 UT App 83, 45 P.3d 176. See Kunzler, 2008 UT App 263, ¶ 19 n. 5, 190 P.3d 497. In both of those cases, the nonowner spouse was awarded a portion of the other spouse’s separate property. See Dunn, 802 P.2d at 1318; Elman, 2002 UT App 83, ¶ 24, 45 P.3d 176. As stated in Kunzler, “the wife [in Dunn] ‘performed bookkeeping and secretarial services without pay’ for the husband’s medical practice, and therefore the business ‘was founded and operated through the joint efforts and joint sacrifices of the parties.’ ” 2008 UT App 263, ¶ 19 n. 5, 190 P.3d 497 (quoting Dunn, 802 P.2d at 1318). Judge Davis also discussed Elman, where

the wife “not only managed the household, but also grew the parties’ marital properties. She secured the land for and was in charge of building the parties’ Park City home.” … The Elman court awarded the wife half of the increase in value of the properties during the marriage “given the unusual responsibilities she assumed.”

Id. (emphasis in original) (quoting Elman, 2002 UT App 83, ¶ 24, 45 P.3d 176).

¶ 13 As noted in the parties’ briefs, there are cases predating MortensenElman, and Dunn that appear to apply a more liberal standard in determining the appropriateness of awarding separate property to a nonowner spouse on the basis of contribution. In Lee v. Lee, 744 P.2d 1378 (Utah Ct.App.1987), this court reversed the trial court for failing to award the wife an equitable share of the husband’s corporation, acquired during the marriage, where “the wife assisted in the operation of the corporation by assuming clerical duties, including typing, answering the phones, and paying bills. Moreover, the wife also reared the parties’ two children and performed domestic duties, allowing the husband to participate full-time in the business.” Id. at 1380. In Savage v. Savage, 658 P.2d 1201 (Utah 1983), the Utah Supreme Court noted that the trial court’s property distribution—granting the wife forty percent of the value of the husband’s company—was within its allotted discretion, in part, “while it is true that the [wife] took no responsibility for the business, it was her assumption of the domestic burdens which made possible the [husband’s] full-time participation in the business.” Id. at 1204.

¶ 14 MortensenDunn, and Elman appear to require more active participation and contribution by the nonowner spouse in order to qualify under the contribution category of Mortensen. As noted in Mortensen, the results are different where there is “effort made by the nondonee or nonheir spouse to preserve or augment the asset,” as compared to situations where there is a “lack of such efforts.” 760 P.2d at 306.

Child v. Child, 194 P.3d 205 (Utah Ct.App. 2008):

“The general rule is that equity requires that each party retain the separate property he or she brought into the marriage, including any appreciation of the separate property.” Dunn v. Dunn, 802 P.2d 1314, 1320 (Utah Ct.App.1990). Such separate property can, however, become part of the marital estate if

(1) the other spouse has by his or her efforts or expense contributed to the enhancement, maintenance, or protection of that property, thereby acquiring an equitable interest in it, or (2) the property has been consumed or its identity lost through commingling or exchanges or where the acquiring spouse has made a gift of an interest therein to the other spouse.

(Mortensen v. Mortensen, 760 P.2d 304, 308 (Utah 1988) (citation omitted)).

Dunn v. Dunn, 802 P.2d 1314, 1317-1319 (Utah Ct.App 1990):

  1. The Professional Corporation

Marital property is ordinarily all property acquired during marriage and it encompasses all of the assets of every nature possessed by the parties, whenever obtained and from whatever source derived.” Gardner v. Gardner, 748 P.2d 1076, 1079 (Utah 1988) (quoting Englert v. Englert, 576 P.2d 1274, 1276 (Utah 1978)). In Sorensen v. Sorensen, 769 P.2d 820 (Utah Ct.App.1989), we affirmed the trial court’s conclusion that the accounts receivable, tangible assets, and goodwill of a professional practice were includable in the marital estate, to the extent they were accumulated during the marriage, in a situation where the husband began his dental practice six years before the marriage began. Id. at 832.

Mrs. Dunn’s position is more conservative than the prevailing view in Sorensen in that she does not assert an interest in her husband’s ongoing practice. Rather, Mrs. Dunn asserts an interest in the tangible assets of a corporation that was established during the marriage.

In Lee v. Lee, 744 P.2d 1378 (Utah Ct.App.1987), we considered a nine year marriage during which the husband established a corporation. The wife contributed some bookkeeping. More significant were her domestic contributions which freed her husband to participate full time in running the business. We held in Lee that the wife was entitled to her full equitable share of the corporation because of the parties’ joint efforts in establishing and maintaining the corporation. Id. at 1380–81.

Here, Mrs. Dunn argues, and we agree, that the trial court abused its discretion by characterizing Dr. Dunn’s professional corporation as a nonmarital asset. The corporation was founded and its assets accrued during the marriage and she performed bookkeeping and secretarial services without pay for the corporation. Thus, the corporation was founded and operated through the joint efforts and joint sacrifices of the parties. In addition, because Dr. Dunn chose to work sixty to seventy hours per week, he left Mrs. Dunn with the sole responsibility of running the household and managing the household accounts. Further, she was left without his companionship and domestic contributions during those hours. While she was not his partner in the business of orthopedic surgery, she was his partner in the “business” of marriage and her efforts were necessary contributions to the growth of his practice and the business. As such, she is entitled to her fair share in any marital assets derived from their joint efforts in that endeavor. Lee, 744 P.2d at 1380–81.

The lower court found that the “net tangible assets are not marital assets and are not subject to division in this action.” Other than this assertion, the court gave no reason for this finding and we can find no support for it in the record. We therefore reverse and remand for an equitable, which in this case means equal, distribution of the net tangible assets of the professional corporation.

  1. Royalty Rights

This court recently affirmed that the right to future income is a marital asset where that right is derived from efforts or products produced during the marriage, even in cases where that right cannot be easily valued. Moon v. Moon, 790 P.2d 52, 56–57 (Utah Ct.App.1990) (right to use sculpture molds is a marital asset); see also Sorensen, 769 P.2d at 827; Woodward v. Woodward, 656 P.2d 431, 432–33 (Utah 1982).

Dr. Dunn argues that the development of the surgical instruments for implanting artificial knees came as a result of twenty-six years of education and training, most of which predated this marriage. He implies that since all of the necessary knowledge, skill and expertise was not acquired during the marriage, Mrs. Dunn should not share in the resulting profits. We find this argument without basis in law or in equity.

Mrs. Dunn asserts, and we agree, that the lower court abused its discretion in finding she had no marital interest in Dr. Dunn’s royalty rights for his invention of surgical instruments used for implanting artificial knees. She argues that the instruments were invented during the marriage, that nothing in the royalty contract conditions the payment of royalties upon Dr. Dunn’s personal services, and that Dr. Dunn himself characterized the income as “installment payments from the sale of property” on the parties’ joint 1987 income tax return. This contract, executed December 1, 1985, entitles Dr. Dunn to fixed quarterly payments totaling $375,000 between 1986 and 1990; $243,750 of the royalties earned during the marriage remained to be paid at the time of trial.

The lower court found that the contract would be “worthless” without his future personal services. However, although Dr. Dunn did spend time demonstrating the instruments, it was not specifically required by the contract. This contract, unlike the one pertaining to the artificial hip devices, is a royalty agreement and not a personal services agreement.

The record indicates that the knee contract is not conditioned upon Dr. Dunn’s personal services and that the primary benefit to Zimmer for the contract is the right to distribute the artificial knee instruments. Because the lower court found that Dr. Dunn traveled twenty-eight days per year doing business that related “equally to the hip agreement and the knee agreement,” and because Dr. Dunn is entitled to be recompensed for his time, we remand this issue to the lower court to deduct an amount equal to fourteen days of personal service from the value of the knee contract and to treat the remainder as a marital asset and to value it as of the date of the divorce and distribute to Mrs. Dunn her equitable share, which, in this case, would be one half.


Utah Family Law, LC | | 801-466-9277

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