Loosely referring to a family owned business as one's own business without a careful examination of the corporate documents, as family members oftentimes do, can have financial consequences. In the recent case of Zito v. Zito, the parties found out just what those financial consequences can be. The husband in that case had always, since the date he first met his wife, referred to Smiling Pizza Corp. (SPC) as his business as he had complete control over the operation of the business, including but not limited to, hiring and firing employees, doing the payroll, signing documents, writing checks and ordering products.
Indeed, he swore to its ownership in two affidavits of net worth and testified at his deposition that he was the owner of SPC. The wife moved for a pendente lite award of child and spousal support which was referred to a hearing to determine the parties' income and expenses in order to set the amount of pendente lite maintenance and child support that the husband would be ordered to pay. SPC moved to intervene arguing that the husband's father was actually the 100% owner of SPC according to the corporate records; therefore, SPC's income/profit was inappropriate to use to determine the husband's child and spousal support obligation and to consider for equitable distribution purposes.
The Court ruled that given the position the husband had already taken in two affidavits of net worth and in sworn deposition testimony, the husband could not be permitted to change his position and argue that SPC was owned wholly by his father. Accordingly, for the purpose of equitable distribution, the husband was found to be the owner of 50% of SPC, as he consistently represented throughout the action until he discharged his prior counsel and retained new counsel.
The Court denied SPC's motion to intervene. The Court argued that since the Court at first instance will consider the dollar amount of the husband's interest in SPC, and is not required to make an award that gives Wife an ownership interest in the business, SPC has no interests to protect that would warrant an order permitting it to intervene in the matrimonial action. Accordingly, SPC's motion to intervene was denied in its entirety as, according to the Court, to hold otherwise would open the floodgates to party owned businesses to become a third litigant in matrimonial litigation.
Accordingly, where there is a family owned business, it is important that one of the very first things done is that the corporate documents be carefully examined to determine just who has what ownership interest in the business so that the party's position throughout the litigation will be consistent with the corporate documents.