Friday, September 29, 2006

Case Law Development: Third-Party Interests in Marital Property During Divorce

Students often have trouble conceptualizing how a court might treat the interests of third parties in marital property.  This case from the Alabama court of appeals provides a somewhat tidy example:

During the marriage, Husband purchased about 15% of the shares in a closely held corporation, using marital funds.  All the shareholders in the corporation had a buy-sell agreement, giving them the right to purchase stock in the event of an involuntary transfer being ordered.  In a subsequent divorce, the trial court ordered Husband to transfer to Wife 300 shares of the stock or to pay to her the agreed price from the buy-sell agreement.  The court of appeals of Alabama reversed, finding no error in the trial court's order to Husband to transfer the stock, but holding that the court failing to order that the company and the other shareholders have the right to purchase the shares awarded to the wife. The court reversed and remanded the entire property division and maintenance award on the basis of this error (one judge dissented on the basis that the order's allowance to Husband that he could pay the buy-sell agreement price in lieu of transferring the stock was sufficient protection of the shareholders). 

In a second appeal arising out of the case, the shareholders had sought to intervene in the divorce action, but the court found no right to intervene  because the husband, who was both a shareholder in the food company and a party to the buy-sell agreement, opposed the trial court's making an in-kind award of stock to the wife, and thus adequately represented the interests of both the company and the other shareholders. 

Kelley v. Kelley, 2006 Ala. Civ. App. LEXIS 579 (September 22, 2006 bgf)

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