Loophole Prevented: Selling a Business During a Divorce

In Marital Dissolution, Minnesota Appellate Decisions, Supreme Court by Joseph Pull

Stacking together two major life events – a divorce and the sale of a multi-million-dollar business – can be a recipe for major headaches and complex interacting consequences.  In the recent Minnesota Gill case, a business sale during a divorce revealed a potential loophole through which an owner-executive tried to avoid sharing assets with a soon-to-be ex-spouse – but the state supreme court blocked the maneuver. On October 24, 2018, the Minnesota Supreme Court issued a decision requiring an ex-husband to split the proceeds of an “earn-out” provision with his ex-wife, notwithstanding that the contract granting the earn-out was signed after the valuation date in the marital dissolution case. The earn-out was part of the purchase agreement for a valuable company. The case presented a question of the boundary between two fundamental principles of Minnesota marital dissolution law: All property acquired during the marriage is subject to division between the ex-spouses.[1] Property acquired by a spouse after the valuation date in the dissolution is not subject to division between the ex-spouses.[2]