When someone gets divorced, everything that is agreed upon by the parties is subject to a decision by a judge. That includes custody, access, child support, use and possession of the family home, alimony and property division.
The most common, and often the most critical, are those agreements related to children and financial matters.
From the business point of view, a business person must know that everything acquired during a marriage is marital property, no matter how it is titled. There are some exceptions. For example, what a person had prior to the marriage; what gift was acquired by a third person; what someone inherited; and what is excluded by valid agreement (usually a premarital agreement).
In addition to the exceptions themselves, anything that is directly traceable to those sources is also not marital.
The significance of property being marital is that it is subject to an equitable division. Marital property can include homes, boats, cars, real property, businesses, retirements, bank accounts and many other items, no matter how they are titled.
If someone has acquired an interest in a cannabis business during the course of the marriage, and it is not subject to one of the above exceptions, it is marital property. If the business is jointly titled, then it is likely that the court will order that it be sold and the proceeds distributed between the parties.
If the business is titled in the name of only one spouse, it will be handled by the court with a monetary award where the spouse in title pays money to the other spouse for his or her interest in the business. Especially in the situation of a monetary award, value is important. The parties will likely need to hire an expert to value the business.
It seems that, at this point in the cannabis industry, there is often a group ownership of business interests. When valuing marital property, there is a need to determine what the ownership interest is of the relevant spouse. It is only that interest that is subject to the claim of the other spouse. And, when there is a joint ownership of the interest by non-spouse individuals, the court’s authority is to enter a monetary award and not a sale.
Certainly, parties can agree about what will happen to any business. There could be a continuation of the business relationship on terms that are agreed upon. There could be a buyout. There could be a trade-off against some other marital asset. Or, there could be a sale.
If the business is owned prior to the marriage, and the intent is to operate it as a going concern after the marriage, it is a good idea to have a premarital agreement.
Such an agreement will determine the disposition of the business in the event of a divorce. The value of the business may still become relevant if there is an open issue of alimony, which requires consideration of the totality of each party’s financial circumstances, including non-marital property.
There is a concept in the law known as use and possession of the family home. This concept is an incident of custody. One with custody might ask that a judge award that parent with the exclusive right to use and occupy the marital home. The goal is to give the children the stability of living in the home while their lives are otherwise changing due to the separation and divorce of the parents.
One of the factors that the court is to consider in assessing the propriety of use and possession is the use of the marital home or any part of it for the production of income by one of the spouses. This is an easily imagined situation of a residence with a business use in the cannabis industry. The argument would be, “I need to be in possession so I can continue to run the business and generate income.” That factor would be weighed against the child’s need to continue to reside in the marital home with one parent to the exclusion of the other.
In a whole other context, cannabis could play a role in custody determinations. When the court considers custody, the criteria to be considered includes, but are not limited to the following: the fitness of the parents; the character and reputation of the parties; the desire of the natural parents and agreements between the parties; the potentiality of maintaining natural family relations; preference of the child; material opportunities affecting the future life of the child; age, health and sex of child; residences of parents and opportunity for visitation; length of separation from the natural parents; and prior voluntary abandonment or surrender.
While the court must consider these factors, and one does not necessarily receive greater weight than the others, the court is to consider that totality of the situation and arrive at a decision that is in the best interest of the child.
It is critical to emphasize that this list of factors is not exhaustive. Public opinion regarding cannabis is widely divergent. Is one a user, a grower, a producer or a dispensary? Although the reality of these respective positions has not yet come to fruition in Maryland, it’s clear that each one potentially presents its own issue for argument about safety for a child, and about judgement.
Whatever the industry becomes, it will be countenanced by the state of Maryland, which impresses legitimacy to the occupation. But the actual operation, demands and exposure of the child to the actual operation will certainly be fodder for a hard-fought custody battle. Strict compliance with all regulations and requirements will be essential for this and other obvious reasons.