New Non-Competition Considerations for Family Businesses

June 5, 2012

Following a recent Massachusetts Appeals Court decision, keeping it all in the family business has become a reality for divorcing spouses.

Last month, the Massachusetts Appeals Court held that the Probate and Family Court had the authority, as part of divorce proceedings, to enjoin a wife from operating a business that is in competition with the husband's family business, effectively binding the wife to a non-competition agreement to which she never agreed. Because the good will of a business is a divisible asset in divorce proceedings, the right of the spouse who does not receive that asset to open a competing business diminishes the value of the business, undermining the attempt at an equitable division of assets between the spouses.

Although this decision is not likely to have broad application outside of divorce matters, it is yet another dimension to consider in family business planning, taking into account the potential pitfalls that may occur when spouses are involved in the same family business, and where that family business may be distributable to one spouse in future divorce proceedings.