Attorney
Along the Rio Grande, acequias have carried water to farms and orchards for centuries. Each ditch runs on rules older than anyone working the land today: who receives water, when, and how much. When a parcel changes hands, the new owner inherits a place in the rotation along with its obligations. Nobody gets to rewrite the schedule because their own circumstances changed.
This sort of long-term, locked-in thinking is familiar to any divorcing couple that is bound together not just by their marital vows, but by a shareholder agreement. Business owners sign these contracts long before anyone imagines a divorce. They then govern who can hold shares, when they can be sold, and at what price. When one owner’s marriage ends, the shareholder agreement often shapes the divorce agreement since they limit what each spouse can realistically ask for, and what the business can afford to give.
As a former business owner who was inspired to go to law school after going through the divorce process, Attorney Bob Matteucci understands the interplay between business agreements and the family court system better than any other attorneys in the Albuquerque area. He’s here to guide you through the system, acting as the business-savvy counsel he wishes he had during his own divorce.
Dividing Value, Not Shares
New Mexico is a community property state, so stock that is acquired during the marriage, or that increases in value during the marriage is generally presumed to be marital property. This means the share’s value (or increase in value) — not the shares themselves — must be divided 50/50 at divorce.
One of the reasons it is the value of the shares and not the shares themselves that are divided is that shareholder agreements often dictate who is allowed to own that stock. Most agreements for closely held family businesses include transfer restrictions that keep shares away from outsiders, including an owner’s former spouse. In a medical, dental, accounting, or law practice, New Mexico’s professional corporation rules generally limit ownership to licensed professionals in the first place.
This means the issue is not really who can own shares of a company post-divorce, but how much a couple’s shares are worth. Unsurprisingly, shareholder agreements often have something to say about this as well.
Where Valuation Clauses Create Leverage
Many shareholder agreements set a buyout price for departing owners, often based on book value. Some exclude goodwill entirely. For a professional practice, whose value lives largely in its reputation and its client or patient relationships, the gap between the formula price and fair market value can be significant.
New Mexico courts take valuation formulas included in shareholder agreements seriously, but don’t follow them blindly. In Hertz v. Hertz, the New Mexico Supreme Court held that a law firm’s agreement assigning goodwill a nominal value controlled the divorce valuation, because the firm had honored it through more than 150 stock transactions. Several years later, in Cox v. Cox, the Court of Appeals declined to apply that rule to an accounting practice whose agreement was dated after the divorce petition was filed, had never been tested, and covered goodwill the couple had purchased with loans secured by their own home.
The courts didn’t come out and say this, but they were thinking like a mayordomo or ditch boss and putting more weight on old rules than recently struck agreements.
This ends up cutting both ways at the negotiating table. The owner’s position is strongest when the agreement predates any marital trouble, has been applied consistently to departing partners, and reflects what the owner could actually realize on exit. The other spouse’s position is strongest when the formula is new, has been amended or ignored, or when recent departing partners received more than it allows. It’s a predictable but flexible rule.
Buyout Provisions and the Cash Question
Once the shares a divorcing couple owns are valued, they still have to be divided. As mentioned above, the shares themselves don’t often change hands. Instead, the spouse who will own them post-divorce “buys out” their partner.
Unlike a typical business buy out where the business is the one doing the buying, during a divorce it is usually the stock-owning spouse funding everything. This is often done by looking at a couple’s assets as a whole rather than each one individually. One takes shares of the business, the other walks away with the family home, a larger chunk of previously shared retirement accounts, or agrees to a set amount paid over time as alimony.
If the business is the main or only asset to divide up, the shareholder agreement can again come into play. It may include provisions that dictate how shares can be redeemed for cash in order to protect the business and the other shareholders. In these circumstances, a structured payout is often the best option.
Serving Families with Dignity & Compassion
Just like water flowing through acequias is controlled by long-standing agreements, the division of business interests during a divorce can be impacted by deals struck long ago. Bob Matteucci’s business background means he is not afraid to dig into shareholder agreements and other business records to make sure a couple’s divorce is fair, final, and not fatal to the business. Contact Bob today to schedule a meeting.