DBTC Law Firm

Going Once, Going Twice, Sold: Can a Judge Make You Bid to Receive Your Interest in a Marital Business?

Attempts to divide the marital assets of a divorcing couple are often complicated. This is particularly true when a couple has been married for decades and owns a business. As a result, judges are often left in the unenviable position of attempting to ascertain the value of the marital businesses and then determine how to divide that business among uncooperative co-owners, without requiring liquidation of the business. In Ballegeer v. Ballegeer, 2019 Ark. App. 269 (Ark. App. 2019), a judge recently came up with a unique method for resolving this dilemma – simply make the divorcing parties bid against each other in a reverse auction.

In Ballegeer, the judge granted Mrs. Ballegeer’s divorce and ruled that the business had a value of $336,000.00 and that one-half interest was thus valued at $183,000.00. The judge then granted Mr. Ballegeer the first right to purchase Mrs. Ballegeer’s interest in the company. If he refused, Mrs. Ballegeer would have the right to purchase her ex-husband’s interest at the same price. However, if she then refused to purchase her ex-husband’s interest, the process would repeat itself with the price dropping by $5,000.00 increments until one of them exercised the right to purchase the other’s interest in the company.

At the time Ms. Ballegeer filed for divorce in 2015, the Ballegeers had been married for more than 30 years and had owned their landscaping/maintenance business for nearly 20 years. While both parties had been involved in the business at various times during the course of its operation, by the time of their separation in 2016, Mr. Ballegeer had complete control of the company and Mrs. Ballegeer was working in a retail store making $8.00 per hour. Mrs. Ballegeer had no access to the income stream from the business and was not in a financial position to be able to obtain a loan to buyout her husband’s interest in the company. Mr. Ballegeer, on the other hand, had a superior bargaining position and the financial ability to obtain a loan and buyout Mrs. Ballegeer’s interest in the company. As a result, the bidding process gave the parties an unequal opportunity to exercise the right to purchase their former spouse’s interest, providing Mr. Ballegeer the ability to purchase his ex-wife’s interest in the business for much less than its actual value.

Although this method for resolving the conflict was a creative solution to a difficult problem, the Arkansas Court of Appeals held that the judge had abused his discretion by not explaining his reasoning for requiring the parties to bid against one another in a manner that resulted in an unequal distribution of the marital property. In Arkansas, marital property is divided equally among the parties unless the judge determines that such a division is inequitable and explains why an unequal distribution of marital property is appropriate. In this case, the judge did not explain the reasons for his decision to impose a bidding procedure that facilitated an unequal distribution of the marital business between the parties. As a result, the Arkansas Court of Appeals sent the case back to the trial court so that the judge would have the opportunity to either alter or scrap the bidding process from his ruling or explain the basis for approving an unequal distribution. It remains an open question as to whether any explanation by the judge regarding his reasons for utilizing the unique bidding process would satisfy the Arkansas appellate courts.

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