Family law - expanding trial courts' authority to create contracts during the equitable division of property in a divorce action.

• Author: Potter, Lindsay
• Position: Massachusetts - Case note

Massachusetts probate courts are given wide discretion to decide how to divide marital assets in a divorce action. (1) In a divorce action that includes a mutually owned family business in the marital estate, Massachusetts probate courts have the authority to enforce a covenant not-to-compete that was bargained for and agreed to by both parties as part of the "sale" of the family business to one spouse. (2) In Cesar v. Simdelin, (3) the Massachusetts appeals Court addressed whether Massachusetts probate courts have the authority to create a covenant not-to-compete, ordering one spouse not to compete with a jointly owned family business being distributed in a divorce decree. (4) the court held that Massachusetts probate courts have the authority to create a covenant not-to-compete as part of a divorce decree. (5)

During Marina Cesar ("Cesar") and Richard Sundelin's ("Sundelin") marriage, they opened a feed and grain store on Cape Cod. (6) Cesar also worked as a veterinarian during their marriage. (7) Each party indicated early in the divorce proceedings that he or she wanted full control of the feed and grain store. (8) The probate court awarded sole control of the business to Sundelin after considering the proposed judgment that each party submitted at the end of the trial. (9)

In addition to requesting sole ownership of the business, Sundelin requested an order prohibiting Cesar from competing with the business. (10) Sundelin first mentioned wanting a covenant not-to-compete as part of the division of assets after trial. (11) The probate court judge denied Sundelin's request for a non-compete order, reasoning that a non-compete order was beyond the court's authority. (12) Following this order, both parties filed motions to alter and amend the divorce judgment. 13 The judge amended the judgment but did not readdress the non-compete issue that had previously been decided. (14) On appeal, the Massachusetts Appeals Court held that the probate court should have considered whether a non-compete order is appropriate in this case because imposing a non-compete order is within the probate court's equitable powers. (15)

The General Laws of Massachusetts provide probate judges with broad discretion to determine how to divide the marital assets in a divorce action and what assets will be included in the marital estate. (16) Probate judges are given the authority to include any of either spouse's individual assets in the marital estate--making it subject to division--regardless of whether it was obtained before or after the parties were married. (17)

Massachusetts probate courts also have the discretion to award alimony as part of the divorce order. (18) Regardless of the level of discretion a state provides to its probate judges, most states recognize that the goodwill of a commercial company is a marital asset if one spouse owns that company. (19) Goodwill of a company that is being sold outside of divorce proceedings is sometimes protected by negotiating a covenant not-to-compete. (20) Some probate courts have recognized a covenant not-to-compete as a distributable asset in a divorce proceeding. (21)

A covenant not-to-compete or a noncompetition agreement generally arises between an employee and employer or is associated with the sale of a business. (22) Courts in most states have the authority to assess the reasonableness of a covenant not-to-compete and to find unreasonable covenants to be unenforceable. (23) A Massachusetts court that finds a covenant not-to-compete to be unreasonable has authority to alter or change the covenant to make it reasonable. (24) Although reasonableness is the general standard, courts in Massachusetts conduct a less searching review of a covenant not-to-compete that is included as part of an agreement to sell a business than would be conducted for a similar agreement made in the employer-employee context. (25)

States are split as to whether it is acceptable for probate courts to impose a covenant not-to-compete as part of the equitable property division in a divorce proceeding. (26) Some states reason that courts can impose covenants not-to-compete in a divorce decree because the order is vital to the protection of the goodwill of a business that is being distributed in the action. (27) In contrast, states that have found it inappropriate for a probate court to impose a covenant not-to-compete as part of asset distribution are reluctant to grant the courts more authority over a spouse's future earnings and profession. (28)

In Cesar v. Sundelin, the Massachusetts Appeals Court emphasized the broad and flexible statutory authority that probate judges have to divide marital assets to support its finding that probate judges have the authority to order covenants not-to-compete. (29) The court further explained that because the authority is flexible, there does not need to be any express statutory authority to support an equitable action. (30) The Massachusetts Appeals Court reasoned that since goodwill is part of the marital estate, it is subject to the broad equitable powers of a probate judge in the equitable distribution of the estate. (31)

After holding that probate judges have the authority to impose a covenant not-to-compete, the Massachusetts Appeals Court declined to comment as to whether the authority could be exercised in this case. (32) The Massachusetts Appeals Court reasoned there was no need to reach the questions of covenant reasonableness or whether the husband's insistence on a covenant was timely because the probate judge based his rejection of the covenant on a presumed lack of authority. (33) The Massachusetts Appeals Court held that probate judges have the authority to act equitably, including ordering an involuntary covenant not-to-compete, but left the probate judges to interpret how far that authority extends. (34)

The extension of the probate court's power to include creating contracts that control one or both spouses' professional future is particularly problematic when considering the expansive power over all assets of divorcing individuals given to Massachusetts probate judges. (35) Prior to Cesar, Massachusetts probate courts already had the discretion to include both assets that were acquired before marriage and that will vest after marriage in the marital estate for equitable distribution. (36) Moreover, by valuing the business goodwill lower if the individual spouse is critical to the business, the court already has the mechanism to make the agreement fair without imposing a covenant not-to-compete. (37) It is unnecessary to also provide the court with a mechanism to force parties into an involuntary contract that limits their professional futures. (38)

Furthermore, in making its decision, the Massachusetts Appeals Court failed to consider several questions: first, how creating a covenant would affect the factors already considered to determine alimony and the appropriate property distribution; and second, how this authority fits within the current Massachusetts jurisprudence concerning covenants not-to-compete. (39) Currently, a probate court is required to consider the "occupation, amount and sources of income, vocational skills, ... [and] employability" when determining how to distribute items in the marital estate and whether to award alimony. (40) As a result of this court's failure to provide guidelines for the implementation of a court ordered covenant, or to discuss how a lower court's action in limiting one spouse's ability to be employed or produce income affects these considerations, it will be even more complicated for probate courts to avoid inappropriately valuing and distributing assets that are uncertain while adjusting for new limits on a spouse's profession. (41) Furthermore, given the inability to modify property distributions, the court should have...