As a business owner, you are no doubt familiar with the crucial role non-compete agreements play when a partner or key employee leaves your company. They are an excellent way to protect your livelihood when a confidant is poised to become a competitor.
When your soon-to-be-ex spouse is the “employee” you are parting ways with, it is easy to see why you may want to treat your divorce decree like a severance agreement and include a non-compete clause in it. This is an increasingly common step traditional business owners, trade professionals, and people like dentists, doctors, accountants, and attorneys in the Albuquerque area are taking to protect themselves during and after their divorce.
With his business savvy and family law experience, Attorney Bob Matteucci can help you figure out if you and your ex would benefit from including a non-compete clause in your marital settlement agreement. He can also ensure any language drafted is narrowly tailored and specific enough to stand up in court and protect your business without hampering either you or your former partner’s ability to earn a living post-divorce.
What Are Non-Compete Agreements and How Do They Work?
Non-compete agreements are legal contracts that restrict an individual’s ability to work for competitors or start a competing business within a specific geographic area and timeframe. These agreements are commonly used in employment contracts to protect trade secrets, proprietary information, and customer relationships.
In the context of divorce, non-compete agreements can serve as a tool to safeguard a business from potential harm if a spouse who was involved in the business decides to use their knowledge or connections against the business after the divorce. While these agreements must be reasonable in scope, duration, and geography to be enforceable, they can provide critical protection for business owners.
Why Include a Non-Compete Agreement in a Divorce Settlement?
For business owners going through a divorce, protecting the business is often a top priority. This is true whether you run a brick and mortar retail store, are a trade professional, or work in a service-based industry like dentistry, healthcare, finance, or law.
If your spouse was actively involved in the business — whether as a partner, employee, or even an advisor — they likely have access to sensitive information about your operations, finances, and clientele. Including a non-compete agreement in your divorce settlement can help ensure that your spouse does not:
- Start a competing business right across the street,
- Work for a competitor and use their insider knowledge to your detriment, or
- Solicit clients or employees from your business.
By clearly setting the professional boundaries you both agree to abide by, a non-compete agreement can provide peace of mind and help stabilize your business during and after the divorce.
Having a formal agreement in place also gives you a legal recourse should your former partner do something they shouldn’t do and end up harming your bottom line. The consequences of violating a non-compete agreement are spelled out in the document and enforceable by the court.
Crafting a Non-Compete Clause in a Shifting Legal Landscape
If you are at all familiar with non-compete agreements, you have likely heard that the government is starting to crack down on their overuse.
At the federal level, Congress and the FTC have proposed banning most non-compete clauses outright. Right now these are just proposals, not actual laws, but they are something to keep an eye on.
Here in New Mexico, our state law already forbids overly broad or unfair restrictions. In order to be enforceable, a non-compete agreement must be reasonable. When evaluating such agreements, judges consider:
- The geographic scope of any restrictions.
- The duration of the non-compete period.
- The legitimate business interests the agreement seeks to protect.
- The potential harm to the affected party if the agreement is not enforced.
For business owners negotiating a divorce settlement, it’s essential to ensure that the terms of any non-compete agreement are narrowly tailored to withstand potential legal challenges. To make sure your agreement holds up, Attorney Matteucci will work with you to identify the risks you want to protect against and craft a plan to do just that.
Depending on the vulnerabilities you identify — client lists, trade secrets, or operational processes — there may be other protective measures you can take in addition to, or as an alternative to, drafting a tight non-compete agreement.
Alternatives and Additions to Non-Compete Agreements: Non-Disparagement and Confidentiality Agreements
If adopting a non-compete clause is impractical, or does not provide enough protection, Attorney Matteucci may recommend some additional or alternative steps you can take to protect your professional reputation and livelihood.
- Non-Disparagement Agreements: These provisions prohibit one or both parties from making negative or harmful statements about the other. In the context of a divorce, this can prevent damaging comments to clients, employees, or the public.
- Confidentiality Agreements: These agreements restrict the sharing or disclosure of specific information and help protect your privacy. This could include financial records, business operations, or personal details that one spouse may have learned during the marriage.
- Customer Non-Solicitation Clauses: When the departing partner has access to client records, or might otherwise try to poach existing clients, these provisions can prevent that from happening. They are frequently used to protect the goodwill and value of service businesses.
For business owners and professionals who depend on their relationship with clients, these agreements can be particularly valuable in mitigating reputational risks and protecting sensitive information.
Serving Families with Dignity & Compassion
A divorce can be a tumultuous time, especially for business owners and professionals. Including a carefully crafted non-compete agreement in your divorce settlement can help protect your ability to earn a living from potential disruptions caused by a former spouse’s future actions. However, given the evolving legal landscape, it’s more important than ever to seek professional legal guidance to ensure your agreement is enforceable and effective.
Attorney Bob Matteucci can help you identify the reputational and financial risks your business faces, and craft a non-compete agreement that will meet your needs and hold up in court. Please contact him today to set up a meeting.