Divorce and Supoena on a Business: When Their Divorce Becomes a Business Problem
May 2008
By: Melissa M. Boyd, Esquire and Mary Cushing Doherty, Esquire*
It’s 4:30 on a Friday afternoon, a stranger walks into your business handing you an envelope. You open the envelope and discover that you have received a subpoena duces tecum (do you wish you understood Latin?) addressed to the Custodian of Records (who is that?) You have been asked to produce about four large boxes of documents to the divorce attorney of your employee’s spouses. The Custodian of Records and the documents are required at the courthouse by Tuesday of the following week at 9:00 a.m. Your inclination is to ignore the document, but instead you think better and pull this article from your file.
In Pennsylvania, when parties divorce, assets are equitably divided. Instead of simply a fifty-fifty split (i.e. each spouse receives exactly one-half of the marital property), equitable distribution contemplates each spouse’s financial situation after the termination of the marriage. While equitable distribution is a flexible standard, it is more difficult to predict the actual outcome, since various factors are subjectively weighed. Almost all assets acquired by each spouse during the marriage are marital property (i.e., the family home, as well as non-tangible items such as retirement benefits). Likewise the value of one spouse’s interest in a business acquired during marriage is a marital asset subject to distribution.
Valuing the business interest and ascertaining income can be very complicated. The disclosure necessary to value the business or determine the income of an owner-spouse may result in a subpoena issued to the subject business. The business entity must carefully consider how it will comply with or object to the subpoena. In most cases, the Court will allow attorneys to subpoena records directly from the business of which a spouse is an employee or has an ownership interest.
Usually, subpoenas are issued to a particular supervisor or the Custodian of Records of the business. A Custodian of Records is an employee or administrator who has access to the business books and records. A subpoena duces tecum is issued to appear and produce tangible evidence for use at a hearing, trial or deposition. When one receives a subpoena of this nature, it is important to review the contents expeditiously to determine an appropriate course of action and response.
Subpoenas seeking business records pertaining to an owner or employee should be closely scrutinized. Often legal counsel should be sought. Many subpoenas seek information that may unduly reveal a trade secret or potentially undermine the viability of the business by revealing proprietary information or competitive pricing information. The business entity may want to argue that compliance would be unduly burdensome, onerous for the business, or it may be unreasonable for the business to produce the requested information. Some subpoenas may be sought in bad faith to force the owner-spouse to settle. Perhaps the information sought is not germane to the issues pertaining to the divorce.
Business entities should also be mindful that divorce materials can become public record. The pleadings and information filed with the Court in a divorce proceeding can be accessed by the public unless the record on the divorce matter is sealed. Therefore, when business records are brought into the divorce litigation through the use of a subpoena, the entity must be mindful of the potential for a publication of business records that would otherwise be kept private.
When a business is concerned about keeping their financial and business matters private, steps should be taken to protect the confidentiality of business records and prevent the dissemination of business information and financial records. The business entity should negotiate a confidentiality agreement which is tailored to meet the specific concerns of the business and the relevant information required by the parties to the divorce litigation.
Confidentiality agreements perform several functions. First , they protect sensitive financial information from disclosure to anyone other than the litigants, their advocates and the Court. The parties to the agreement may not disclose business information received from the other party. If the information is revealed to another individual or company, the business has cause to claim a breach of contract and can seek injunctive and monetary damages. Confidentiality agreements define exactly what information cannot be disclosed by specifically classifying certain information as confidential or proprietary. Confidentiality agreements can also call for the redaction of information that is not germane or relevant to the divorce action. The confidentiality agreement will also limit each party's use of the confidential information. For example, the agreement will specify that the confidential information is to be used only by the parties or signatories to agreement and for the divorce or support litigation purposes. Knowing a few basic points concerning confidentiality agreements can ensure that the relevant information will not be misused by the parties.
When information is sought which is clearly irrelevant or requested in bad faith to undermine the viability of the business, it may be more prudent to seek redress from the court by filing a Motion to Quash the subpoena. Successfully quashing the subpoena in its entirety relieves the obligation to appear or produce documents. A Motion to Quash a subpoena must be made before the time specified in the subpoena for compliance. All reasons why a business should not be expected to respond to the subpoena should be articulated in the motion. More often than not, an argument on the motion to quash is had before an ultimate ruling is issued.
Failure to comply with a subpoena may result in sanctions issued against the business. If a confidentiality agreement is not negotiated or a Motion to Quash is not granted, the business administrator or records custodian will be required to appear and provide the requested information. Sanctions for failing to comply with a subpoena will result in fines and an unfriendly Court. Future applications on behalf of the business will be viewed less favorably by the judge.
If you receive a subpoena for business financial information, treat it seriously. Act quickly. This is a good time to seek the advice of your attorney so that the business interests are protected.
*Mary Cushing Doherty, Esquire is a partner with High, Swartz, Roberts & Seidel, LLP, heading the domestic relations practice. Melissa M. Boyd, Esquire an associate with High, Swartz, Roberts & Seidel, LLP practicing domestic relations law exclusively.
