Spousal Opportunity: Does It Exist?

Shortly after the entry of a divorce judgment, matrimonial litigants walk away with their respective pieces of the marital estate (sometimes with support or distributive payments to follow) and begin separate lives with separate interests. However, without adequate protections under the law, the value of the marital estate before that pivotal moment (and the value of each litigant's post-termination estate) could have been diminished by the actions of the other spouse. For this reason, some concept of a fiduciary obligation between spouses exists in the majority of the states. Whether in equitable distribution jurisdictions or community property jurisdictions “spouses must manage marital property with care shortly before the termination of the marriage to ensure that the full value of the marital estate gets divided justly according to the prevailing system of distribution. For example, in California, each spouse has a fiduciary obligation to act in good faith with respect to the management and control of community property. Cal. Fam. Code (Section sign) 721; see Duffy v. Duffy, 111 Cal. Rptr. 2d 160, 164-65, 91 Cal. App. 4th 923, 930 (Cal. Ct. App. 2001); Rossi v. Rossi, 108 Cal. Rptr. 2d 270, 275, 90 Cal. App. 4th 34, 40 (Cal. Ct. App. 2001). Even in the equitable distribution state of Massachusetts, where there is no articulated concept of a fiduciary obligation, conduct that has harmed the marital estate may be considered a factor tending to decrease that spouse's equitable share of marital property upon divorce. Kittredge v. Kittredge, 441 Mass. 28, 803 N.E.2d 306 (Mass. 2004) (holding that a portion of the husband's gambling losses were chargeable to the husband in the ultimate division of marital property).

Today's Complexities

Today, marital dissipation is more complicated than ever. No longer is an attorney confronted with the simple case of a spouse purchasing lavish gifts for a paramour using marital funds. Rather, what has evolved over the course of the last several years is ever increasing, overly complex schemes to defer lucrative business transactions until after termination of the marriage. Are the courts prepared to deal with this scenario? Is an extension of the doctrine of corporate opportunity the answer? It seems that California legislators clearly contemplated the need to infuse matrimonial law with corporate principles of fair dealing. Duffy v. Duffy. (The duties specified in Family Code section 721, subdivision (b), are derived from the Corporations Code sections upon which subdivision (b) relies.). Indeed, California legislators have gone far in identifying the responsibilities of spouses with regard to business assets acquired after separation but before dissolution. California Family Code A ' 2102 requires the accurate and complete written disclosure of any investment opportunity, business opportunity, or other income-producing opportunity that presents itself after the date of separation, but that results from any investment, significant business activity outside the ordinary course of business, or other income-producing opportunity of either spouse from the date of marraige to the date of separation, inclusive. Cal. Fam. Code A ' 2102(a)(2); see also Varner v. Varner, 63 Cal. Rptr. 2d 894, 903, 55 Cal. App. 4th 128, 142 (Cal. Ct. App. 1997), superceded by statute, Rubenstein v. Rubenstein, 81 Cal. App. 4th 1131 (2000).

Example: New York

In New York, corporate opportunity doctrine prohibits a director or officer from seizing business opportunities when the corporation has a tangible expectancy in those opportunities. Similarly, a spouse contemplating a divorce while managing the marital business assets should be precluded from appropriating spousal opportunities. In many respects, New York already recognizes that spouses have a fiduciary duty to avoid self-dealing with marital business assets and must be accountable for secret, self-serving acts and omissions that harm their spouses' interests upon divorce. The seeds for a fully developed doctrine of spousal opportunity have been sown.

New York has long recognized the existence of a fiduciary relationship in partnerships or corporations and marriages. In 1928, Justice Cardozo eloquently explained the fiduciary relationship within the partnership: “Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the 'disintegrating erosion' of particular exceptions.” Mienhard v. Salmon, 249 N.Y. 458, 464, 164 N.E.545, 546 (1928), see also Fisher v. KPMG Peat Marwick, 195 A.D.2d 222, 225, 607 N.Y.S.2d 309, 311 (1st Dep't 1994). This fiduciary obligation has been held to exist in the public corporation and the close corporation, in like manner. See American Federal Group, Ltd v. Rothenberg, 136 F.3d 897, 905, 40 Fed.R.Serv.3d 44 (2nd Cir. 1998).

In 1915, the court in Ducas v. Guggenheimer, 90 Misc. 191, 195, 153 N.Y.S. 591, 594 (Sup. Ct. N.Y. County 1915), aff'd, Ducas v. Ducas, 173 A.D. 884, 157 N.Y.S. 801 (1st Dep't 1916) (internal citations omitted), explained a similar fiduciary relationship between a husband and wife: ” … the law, in order to prevent undue advantage from the unlimited confidence, affection, or sense of duty which the relation naturally creates, requires the utmost degree of good faith (uberrima fides) in all transactions between the parties. If there is any misrepresentation, or any concealment of a material fact, or any just suspicion of artifice or undue influence, courts of equity will interpose and pronounce the transaction void, and as far as possible restore the parties to their original rights.” See also Manes v. Manes, 277 A.D.2d 359, 361, 717 N.Y.S.2d 185, 188 (2nd Dep't 2000).

Corporate Opportunity

The corporate opportunity doctrine enforces the fiduciary relationship between officers and directors on the one hand and the corporation and its shareholders on the other. In New York, a corporate opportunity exists where a corporation has a “tangible expectancy,” Matter of Greenberg, 206 A.D.2d 963, 964, 614 N.Y.S.2d 825, 827 (4th Dep't 1994), and a “degree of likelihood of realization from the opportunity,” In re Gordon Car & Truck Rental, Inc. v. Gordon, 65 B.R. 371, 376 (Bankr.N.D.N.Y. 1986). This doctrine prevents a fiduciary from acquiring property that “the corporation needs or is seeking” or property the fiduciary is “under a duty to the corporation to acquire for it.” Burg v. Horn, 380 F.2d 897, 899 (2nd Cir. 1967). In New York, it is simply not enough that the property or opportunity was “in the line of business” of the corporation, Id. at 900. Rather, a corporate opportunity is something “much less tenable than ownership” but more than a “desire” or “hope.” Alexander & Alexander of New York v. W. Fritzen, 147 A.D.2d 241, 247-248, 542 N.Y.S.2d 530, 534 (1st Dep't 1989).

Under the New York corporate opportunity doctrine, a corporate officer or director is prohibited from the following; he may not:

• purchase for himself property under lease to the corporation;
• draw away existing customers of the corporation;
• take advantage of an offer made to the corporation or an opportunity revealed while in his official capacity; or 
• establish a competing entity so as to divert opportunities away from the principal.

Burg, 380 F.2d 897, 899-900, see also Laro Maintenance Corp. v. Culkin, 267 A.D.2d 431, 433, 700 N.Y.S.2d 490, 492 (2nd Dep't 1999). The court will find useful a factual showing that the officer or director intended to “divert into his or her coffers the prospective benefit which the corporation expected to acquire.” Gordon, 65 B.R. at 376.

How Does It Apply to Marriage?

The remedy is most often the imposition of a constructive trust for the benefit of the corporation. See Burg, 380 F.2d at 899. Above all, an officer or a director must account to a corporation for “diversions of its assets, contracts and business opportunities,” Wolff v. Wolff, 67 N.Y.2d 638, 641, 490 N.E.2d 532, 533-534, 499 N.Y.S.2d 665, 667 (1986), and any damages therefrom shall be measured by the benefit the fiduciary derived from usurping corporate resources and opportunities, Natoli v. Carriage House Motor Inn, Inc., No. 85-CV-1457, 1988 WL 53397, at *12 (N.D.N.Y. May 24, 1988). Of note, in both Wolff and Natoli, New York courts' obiter dictum expressed doubt as to the appropriateness of applying corporate law principles, including the doctrine of corporate opportunity, to family disputes involving family businesses, even though the Natoli court ultimately did so anyway. Neither of these cases involved a husband and wife; however, courts may be more alert to marital misbehavior than issues raised in disputes between family factions, and, therefore, any hesitancy in applying the corporate opportunity doctrine in matrimonial actions may be overcome.

In New York, the marital fiduciary indeed is made responsible for the diversion of marital assets. A spouse may demand an accounting from the other spouse, for example, for the transfer of marital funds to a separate account or a third party. See Marcus v. Marcus, 92 A.D.2d 887, 459 N.Y.S.2d 873 (2nd Dep't 1983), see also Darlagiannis v. Darlagiannis, 48 A.D.2d 875, 369 N.Y.S.2d 475 (2nd Dep't 1975). Although there is some disagreement on this issue, punitive damages likely will not be available even where the marital fiduciary's actions constitute gross, wanton or willful fraud or other morally culpable conduct. See Marcus, 92 A.D.2d at 874 (disallowing punitive damages for a fraudulent diversion of marital assets because the fraud was not aimed at the general public), but see Borkowski v. Borkowski, 39 N.Y.2d 982, 355 N.E.2d 287, 387 N.Y.S.2d 233 (1976)(affirming the availability of punitive damages for conduct not aimed generally at the public).

Actions for a marital accounting are rare since the enactment in 1980 of the New York Equitable Distribution Law. Pursuant to New York DRL ' 236 (B) (5), a spouse is entitled to, “a searching exploration of [the] other's assets and dealings at the time of and during the marriage,” Kaye v. Kaye, 102 A.D.2d 682, 686, 478 N.Y.S.2d 324, 327 (2nd Dep't 1984) (internal citations omitted), and a court must consider any wasteful dissipation or transfer of assets, without fair consideration, made in contemplation of a matrimonial action, New York DRL ' 236 (B) (5) (d) (11) and (12). Thus, a separate accounting cause of action is no longer necessary.

Fiduciary Relationships

With the fiduciary relationships — partner to partner, officer/director to corporation and spouse to spouse, — there is a jural structure (governed by statutes and often agreements) that may not account for each and every understanding of the parties or the duties imposed on the parties by law. The laws of corporate opportunity and equitable distribution fill the gap so that neither type of fiduciary is permitted to thieve a piece of the corporate or marital pie with impunity.

Where individuals invest their money in a corporation, sometimes with little or no control over their investment, the corporate opportunity doctrine protects them from the actions of directors and officers who might otherwise behave selfishly in ways that impair their investment. There is a sense that these individual investors would not otherwise have the ability to negotiate for every specific contractual prohibition against harmful activity, and the corporate opportunity doctrine offers the broad protection needed. See generally, Brudney V, Clark, RC: A New Look at Corporate Opportunities. 94 Harv. L. Rev. 998-1000 (1981).

Likewise, New York Equitable Distribution Law sets forth in detail how the marital estate shall be defined, in a way perceived to be most fair to the parties. DRL ' 236, however, does not regulate spousal behavior with regard to marital assets acquired immediately before commencement of an action; in fact, DRL ' 236 does not provide for every possible scenario regarding how marital assets may be distributed or accounted for. Often, even a prenuptial agreement will not anticipate matters or address situations that may arise upon dissolution of the marriage. To some degree, the courts are obligated under their equitable distribution powers to fashion appropriate solutions to unforeseen problems, including problems involving the distribution of business assets. For example, in considering corporate shareholder agreements for closely held corporations, where some portion of the corporations is subject to equitable distribution in matrimonial actions, New York courts have sought to determine whether the agreements were executed when the parties were free of marital turmoil in order to prevent the interest-holding spouses from defrauding the others by procuring agreements purporting to show the corporations have little value. See Amodio v. Amodio, 122 A.D.2d 757, 758, 505 N.Y.S.2d 645, 646 (2nd Dep't 1986), aff'd 70 N.Y.2d 5, 509 N.E.2d 936, 516 N.Y.S.2d 923 (1987).

New York courts applying their general equity powers have interpreted the Equitable Distribution Law to provide protection for a spouse who, for one reason or another, has little or no control over the marital property and finances and is therefore extremely vulnerable to the actions of the other spouse in hiding or diverting marital assets before or after the commencement of a matrimonial action. These courts accordingly have issued injunctions to restrain a wide variety of attempted spousal abuses.

It is important to note that New York courts almost universally prefer distributive awards over in-kind distributions of businesses determined to be marital property, as allowed by New York DRL ' 236 (B) (5) (e), both in situations where only one spouse was actively involved in the business or even where both spouses contributed actively to the business. The courts recognize the obvious ill-prudence of forcing former spouses, after the divorce, to co-manage a business. See, e.g., Rosenberg v. Rosenberg, 126 A.D.2d 537, 540, 510 N.Y.S.2d 659, 663 (2nd Dep't 1987). Valuation of the business as of the commencement date of the divorce action, the usual practice concerning an actively managed asset, or at the time of trial, in some unusual circumstances, ideally should get for the non-titled spouse an adequate distributive award based on the value of the business before the parties parted ways. However, in reality, a party may decide some time before commencement that he or she intends to divorce the other and may begin diverting business opportunities and resources much sooner. Unlike simple marital assets, eg, money market funds, which may be recouped in a divorce action, this diversion of marital assets may go unaccounted for and, indeed, undetected.

In New York, once a business is determined to be marital, the parties' equitable share will be determined by their respective direct and indirect contributions to that business. After deciding to divorce but before bringing an action (and intending to avoid a larger distributive award with respect to a marital business), a spouse may “freeze out” the other, thereby being able to argue that the other spouse made fewer contributions, direct or indirect, to the marital business, and thus is entitled to a smaller percentage interest in that asset. Or a spouse who may be already physically separated from the other may start another business altogether, to which their spouse can claim no direct or indirect contribution, all the while siphoning off resources, assets, business contacts, etc. from the original marital business in order to do so. Alternatively, a spouse may not go that far but instead, recognizing a divorce may be in the offing, delay until after commencement, closing on a 'big deal' that otherwise would have increased the value of the business. An articulated doctrine of spousal opportunity, which sets forth each of the tests and remedies of the corporate opportunity doctrine, may be necessary to solve these problems; indeed, it would require no great leap in jurisprudence.

Other thorny issues related to the marital business still obtrude. For example, what happens if a spouse does not divert marital business assets but instead refuses to work those assets or purposefully mismanages them? To some degree, this problem is already covered — a party may argue dissipation of a marital asset, see Davis v. Davis, 175 A.D 2d 45, 48, 573 N.Y.S.2d 162, 165 (1st Dep't 1991), and the spouse may in these cases find greater sympathy and protection from the courts than in corporate cases, where the malfeasant fiduciary may be protected by the business judgment rule, something that likely would not be extended to the marital fiduciary.

Finally, a general issue more difficult to resolve is the seeming unfairness of the result where both parties were active participants in the marital business and one spouse walks away with an intact business and valuable business contacts and resources that will enable him or her to continue to operate a thriving business into the future. Any valuation of the marital business should include a robust valuation of goodwill, which may fairly compensate the other spouse for this apparent inequity.

Conclusion

Notwithstanding the likely persistence of these and other issues, it is clear that as the business form increasingly complicates the division of marital assets, an articulated doctrine of spousal opportunity is essential even while its sub silentio recognition has endured as long as marital mischief.

Shortly after the entry of a divorce judgment, matrimonial litigants walk away with their respective pieces of the marital estate (sometimes with support or distributive payments to follow) and begin separate lives with separate interests. However, without adequate protections under the law, the value of the marital estate before that pivotal moment (and the value of each litigant's post-termination estate) could have been diminished by the actions of the other spouse. For this reason, some concept of a fiduciary obligation between spouses exists in the majority of the states. Whether in equitable distribution jurisdictions or community property jurisdictions “spouses must manage marital property with care shortly before the termination of the marriage to ensure that the full value of the marital estate gets divided justly according to the prevailing system of distribution. For example, in California, each spouse has a fiduciary obligation to act in good faith with respect to the management and control of community property. Cal. Fam. Code (Section sign) 721; see Duffy v. Duffy , 111 Cal. Rptr. 2d 160, 164-65, 91 Cal. App. 4th 923, 930 (Cal. Ct. App. 2001); Rossi v. Rossi , 108 Cal. Rptr. 2d 270, 275, 90 Cal. App. 4th 34, 40 (Cal. Ct. App. 2001). Even in the equitable distribution state of Massachusetts, where there is no articulated concept of a fiduciary obligation, conduct that has harmed the marital estate may be considered a factor tending to decrease that spouse's equitable share of marital property upon divorce. Kittredge v. Kittredge , 441 Mass. 28, 803 N.E.2d 306 (Mass. 2004) (holding that a portion of the husband's gambling losses were chargeable to the husband in the ultimate division of marital property).

Today's Complexities

Today, marital dissipation is more complicated than ever. No longer is an attorney confronted with the simple case of a spouse purchasing lavish gifts for a paramour using marital funds. Rather, what has evolved over the course of the last several years is ever increasing, overly complex schemes to defer lucrative business transactions until after termination of the marriage. Are the courts prepared to deal with this scenario? Is an extension of the doctrine of corporate opportunity the answer? It seems that California legislators clearly contemplated the need to infuse matrimonial law with corporate principles of fair dealing. Duffy v. Duffy. (The duties specified in Family Code section 721, subdivision (b), are derived from the Corporations Code sections upon which subdivision (b) relies.). Indeed, California legislators have gone far in identifying the responsibilities of spouses with regard to business assets acquired after separation but before dissolution. California Family Code A ' 2102 requires the accurate and complete written disclosure of any investment opportunity, business opportunity, or other income-producing opportunity that presents itself after the date of separation, but that results from any investment, significant business activity outside the ordinary course of business, or other income-producing opportunity of either spouse from the date of marraige to the date of separation, inclusive. Cal. Fam. Code A ' 2102(a)(2); see also Varner v. Varner , 63 Cal. Rptr. 2d 894, 903, 55 Cal. App. 4th 128, 142 (Cal. Ct. App. 1997), superceded by statute, Rubenstein v. Rubenstein , 81 Cal. App. 4th 1131 (2000).

Example: New York

In New York, corporate opportunity doctrine prohibits a director or officer from seizing business opportunities when the corporation has a tangible expectancy in those opportunities. Similarly, a spouse contemplating a divorce while managing the marital business assets should be precluded from appropriating spousal opportunities. In many respects, New York already recognizes that spouses have a fiduciary duty to avoid self-dealing with marital business assets and must be accountable for secret, self-serving acts and omissions that harm their spouses' interests upon divorce. The seeds for a fully developed doctrine of spousal opportunity have been sown.

New York has long recognized the existence of a fiduciary relationship in partnerships or corporations and marriages. In 1928, Justice Cardozo eloquently explained the fiduciary relationship within the partnership: “Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the 'disintegrating erosion' of particular exceptions.” Mienhard v. Salmon , 249 N.Y. 458, 464, 164 N.E.545, 546 (1928), see also Fisher v. KPMG Peat Marwick , 195 A.D.2d 222, 225, 607 N.Y.S.2d 309, 311 (1st Dep't 1994). This fiduciary obligation has been held to exist in the public corporation and the close corporation, in like manner. See American Federal Group, Ltd v. Rothenberg , 136 F.3d 897, 905, 40 Fed.R.Serv.3d 44 (2nd Cir. 1998).

In 1915, the court in Ducas v. Guggenheimer , 90 Misc. 191, 195, 153 N.Y.S. 591, 594 (Sup. Ct. N.Y. County 1915), aff'd, Ducas v. Ducas , 173 A.D. 884, 157 N.Y.S. 801 (1st Dep't 1916) (internal citations omitted), explained a similar fiduciary relationship between a husband and wife: ” … the law, in order to prevent undue advantage from the unlimited confidence, affection, or sense of duty which the relation naturally creates, requires the utmost degree of good faith (uberrima fides) in all transactions between the parties. If there is any misrepresentation, or any concealment of a material fact, or any just suspicion of artifice or undue influence, courts of equity will interpose and pronounce the transaction void, and as far as possible restore the parties to their original rights.” See also Manes v. Manes , 277 A.D.2d 359, 361, 717 N.Y.S.2d 185, 188 (2nd Dep't 2000).

Corporate Opportunity

The corporate opportunity doctrine enforces the fiduciary relationship between officers and directors on the one hand and the corporation and its shareholders on the other. In New York, a corporate opportunity exists where a corporation has a “tangible expectancy,” Matter of Greenberg, 206 A.D.2d 963, 964, 614 N.Y.S.2d 825, 827 (4th Dep't 1994), and a “degree of likelihood of realization from the opportunity,” In re Gordon Car & Truck Rental, Inc. v. Gordon , 65 B.R. 371, 376 (Bankr.N.D.N.Y. 1986). This doctrine prevents a fiduciary from acquiring property that “the corporation needs or is seeking” or property the fiduciary is “under a duty to the corporation to acquire for it.” Burg v. Horn , 380 F.2d 897, 899 (2nd Cir. 1967). In New York, it is simply not enough that the property or opportunity was “in the line of business” of the corporation, Id. at 900. Rather, a corporate opportunity is something “much less tenable than ownership” but more than a “desire” or “hope.” Alexander & Alexander of New York v. W. Fritzen , 147 A.D.2d 241, 247-248, 542 N.Y.S.2d 530, 534 (1st Dep't 1989).

Under the New York corporate opportunity doctrine, a corporate officer or director is prohibited from the following; he may not:

• purchase for himself property under lease to the corporation;
• draw away existing customers of the corporation;
• take advantage of an offer made to the corporation or an opportunity revealed while in his official capacity; or 
• establish a competing entity so as to divert opportunities away from the principal.

Burg , 380 F.2d 897, 899-900, see also Laro Maintenance Corp. v. Culkin , 267 A.D.2d 431, 433, 700 N.Y.S.2d 490, 492 (2nd Dep't 1999). The court will find useful a factual showing that the officer or director intended to “divert into his or her coffers the prospective benefit which the corporation expected to acquire.” Gordon, 65 B.R. at 376.

How Does It Apply to Marriage?

The remedy is most often the imposition of a constructive trust for the benefit of the corporation. See Burg, 380 F.2d at 899. Above all, an officer or a director must account to a corporation for “diversions of its assets, contracts and business opportunities,” Wolff v. Wolff , 67 N.Y.2d 638, 641, 490 N.E.2d 532, 533-534, 499 N.Y.S.2d 665, 667 (1986), and any damages therefrom shall be measured by the benefit the fiduciary derived from usurping corporate resources and opportunities, Natoli v. Carriage House Motor Inn, Inc., No. 85-CV-1457, 1988 WL 53397, at *12 (N.D.N.Y. May 24, 1988). Of note, in both Wolff and Natoli, New York courts' obiter dictum expressed doubt as to the appropriateness of applying corporate law principles, including the doctrine of corporate opportunity, to family disputes involving family businesses, even though the Natoli court ultimately did so anyway. Neither of these cases involved a husband and wife; however, courts may be more alert to marital misbehavior than issues raised in disputes between family factions, and, therefore, any hesitancy in applying the corporate opportunity doctrine in matrimonial actions may be overcome.

In New York, the marital fiduciary indeed is made responsible for the diversion of marital assets. A spouse may demand an accounting from the other spouse, for example, for the transfer of marital funds to a separate account or a third party. See Marcus v. Marcu s, 92 A.D.2d 887, 459 N.Y.S.2d 873 (2nd Dep't 1983), see also Darlagiannis v. Darlagiannis , 48 A.D.2d 875, 369 N.Y.S.2d 475 (2nd Dep't 1975). Although there is some disagreement on this issue, punitive damages likely will not be available even where the marital fiduciary's actions constitute gross, wanton or willful fraud or other morally culpable conduct. See Marcus , 92 A.D.2d at 874 (disallowing punitive damages for a fraudulent diversion of marital assets because the fraud was not aimed at the general public), but see Borkowski v. Borkowski , 39 N.Y.2d 982, 355 N.E.2d 287, 387 N.Y.S.2d 233 (1976)(affirming the availability of punitive damages for conduct not aimed generally at the public).

Actions for a marital accounting are rare since the enactment in 1980 of the New York Equitable Distribution Law. Pursuant to New York DRL ' 236 (B) (5), a spouse is entitled to, “a searching exploration of [the] other's assets and dealings at the time of and during the marriage,” Kaye v. Kaye , 102 A.D.2d 682, 686, 478 N.Y.S.2d 324, 327 (2nd Dep't 1984) (internal citations omitted), and a court must consider any wasteful dissipation or transfer of assets, without fair consideration, made in contemplation of a matrimonial action, New York DRL ' 236 (B) (5) (d) (11) and (12). Thus, a separate accounting cause of action is no longer necessary.

Fiduciary Relationships

With the fiduciary relationships — partner to partner, officer/director to corporation and spouse to spouse, — there is a jural structure (governed by statutes and often agreements) that may not account for each and every understanding of the parties or the duties imposed on the parties by law. The laws of corporate opportunity and equitable distribution fill the gap so that neither type of fiduciary is permitted to thieve a piece of the corporate or marital pie with impunity.

Where individuals invest their money in a corporation, sometimes with little or no control over their investment, the corporate opportunity doctrine protects them from the actions of directors and officers who might otherwise behave selfishly in ways that impair their investment. There is a sense that these individual investors would not otherwise have the ability to negotiate for every specific contractual prohibition against harmful activity, and the corporate opportunity doctrine offers the broad protection needed. See generally, Brudney V, Clark, RC: A New Look at Corporate Opportunities. 94 Harv. L. Rev. 998-1000 (1981).

Likewise, New York Equitable Distribution Law sets forth in detail how the marital estate shall be defined, in a way perceived to be most fair to the parties. DRL ' 236, however, does not regulate spousal behavior with regard to marital assets acquired immediately before commencement of an action; in fact, DRL ' 236 does not provide for every possible scenario regarding how marital assets may be distributed or accounted for. Often, even a prenuptial agreement will not anticipate matters or address situations that may arise upon dissolution of the marriage. To some degree, the courts are obligated under their equitable distribution powers to fashion appropriate solutions to unforeseen problems, including problems involving the distribution of business assets. For example, in considering corporate shareholder agreements for closely held corporations, where some portion of the corporations is subject to equitable distribution in matrimonial actions, New York courts have sought to determine whether the agreements were executed when the parties were free of marital turmoil in order to prevent the interest-holding spouses from defrauding the others by procuring agreements purporting to show the corporations have little value. See Amodio v. Amodio , 122 A.D.2d 757, 758, 505 N.Y.S.2d 645, 646 (2nd Dep't 1986), aff'd 70 N.Y.2d 5, 509 N.E.2d 936, 516 N.Y.S.2d 923 (1987).

New York courts applying their general equity powers have interpreted the Equitable Distribution Law to provide protection for a spouse who, for one reason or another, has little or no control over the marital property and finances and is therefore extremely vulnerable to the actions of the other spouse in hiding or diverting marital assets before or after the commencement of a matrimonial action. These courts accordingly have issued injunctions to restrain a wide variety of attempted spousal abuses.

It is important to note that New York courts almost universally prefer distributive awards over in-kind distributions of businesses determined to be marital property, as allowed by New York DRL ' 236 (B) (5) (e), both in situations where only one spouse was actively involved in the business or even where both spouses contributed actively to the business. The courts recognize the obvious ill-prudence of forcing former spouses, after the divorce, to co-manage a business. See, e.g., Rosenberg v. Rosenberg , 126 A.D.2d 537, 540, 510 N.Y.S.2d 659, 663 (2nd Dep't 1987). Valuation of the business as of the commencement date of the divorce action, the usual practice concerning an actively managed asset, or at the time of trial, in some unusual circumstances, ideally should get for the non-titled spouse an adequate distributive award based on the value of the business before the parties parted ways. However, in reality, a party may decide some time before commencement that he or she intends to divorce the other and may begin diverting business opportunities and resources much sooner. Unlike simple marital assets, eg, money market funds, which may be recouped in a divorce action, this diversion of marital assets may go unaccounted for and, indeed, undetected.

In New York, once a business is determined to be marital, the parties' equitable share will be determined by their respective direct and indirect contributions to that business. After deciding to divorce but before bringing an action (and intending to avoid a larger distributive award with respect to a marital business), a spouse may “freeze out” the other, thereby being able to argue that the other spouse made fewer contributions, direct or indirect, to the marital business, and thus is entitled to a smaller percentage interest in that asset. Or a spouse who may be already physically separated from the other may start another business altogether, to which their spouse can claim no direct or indirect contribution, all the while siphoning off resources, assets, business contacts, etc. from the original marital business in order to do so. Alternatively, a spouse may not go that far but instead, recognizing a divorce may be in the offing, delay until after commencement, closing on a 'big deal' that otherwise would have increased the value of the business. An articulated doctrine of spousal opportunity, which sets forth each of the tests and remedies of the corporate opportunity doctrine, may be necessary to solve these problems; indeed, it would require no great leap in jurisprudence.

Other thorny issues related to the marital business still obtrude. For example, what happens if a spouse does not divert marital business assets but instead refuses to work those assets or purposefully mismanages them? To some degree, this problem is already covered — a party may argue dissipation of a marital asset, see Davis v. Davis , 175 A.D 2d 45, 48, 573 N.Y.S.2d 162, 165 (1st Dep't 1991), and the spouse may in these cases find greater sympathy and protection from the courts than in corporate cases, where the malfeasant fiduciary may be protected by the business judgment rule, something that likely would not be extended to the marital fiduciary.

Finally, a general issue more difficult to resolve is the seeming unfairness of the result where both parties were active participants in the marital business and one spouse walks away with an intact business and valuable business contacts and resources that will enable him or her to continue to operate a thriving business into the future. Any valuation of the marital business should include a robust valuation of goodwill, which may fairly compensate the other spouse for this apparent inequity.

Conclusion

Notwithstanding the likely persistence of these and other issues, it is clear that as the business form increasingly complicates the division of marital assets, an articulated doctrine of spousal opportunity is essential even while its sub silentio recognition has endured as long as marital mischief.