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A Separation Agreement Can Have Unintended Consequences

The internet has been abuzz with news that popular fact-checking and myth-resolving website Snopes has put out a desperate SOS asking its readers for financial assistance to keep it afloat. According to the site:

“We had previously contracted with an outside vendor to provide certain services for Snopes.com. That contractual relationship ended earlier this year, but the vendor will not acknowledge the change in contractual status and continues to essentially hold the Snopes.com web site hostage. Although we maintain editorial control (for now), the vendor will not relinquish the site’s hosting to our control, so we cannot modify the site, develop it, or — most crucially — place advertising on it. The vendor continues to insert their own ads and has been withholding the advertising revenue from us.”

So essentially, the domain host won’t allow Snopes to alter their own website beyond, apparently, creating new posts. Sounds like an ugly contract dispute, sure, but nothing too strange. Certainly nothing that anyone should be reading about on a family law firm’s website.

But wait! Other outlets have dug into the story. It appears that the vendor dispute stems from the divorce proceedings of Snopes’ founders, owners, and operators, former married couple David and Barbara Mikkelson.

TechCrunch has the full story. What appears to have happened is that in 2014, Barbara and David divorced. Because they co-owned Snopes, this necessitated that the two divide the business. Each received half of the shares in the company, Bardav, that owns Snopes. A year later, Bardav entered into a contract with Proper Media to provide some sort of services for Snopes. Reading between the lines, this seems to include hosting the site and managing its revenue in some way – probably to make running the site easier in light of the new, post-divorce relationship between Barbara and David. Then, in 2016, Barbara sold her shares to Proper Media.

Suddenly, David found himself a 50/50 partner with a large web-hosting company instead of a trusted loved one, a situation he couldn’t have foreseen and likely hadn’t contemplated when he and Barbara split their shares. Plus, he was committed to the contractual terms he had entered into with Proper Media before they were a part-owner of the company. It looks like the instant dispute stems from David’s attempt to cancel the contract with Proper Media, which is now holding on to the site’s advertising revenue and not allowing David to place new ads on the site. In short, David has been locked out of making money from Snopes.

For its part, Proper Media alleges that David illegally tried to breach the contract, and engaged in his own hostage-holding by keeping portions of the business under his exclusive control.

So yes, very ugly. And Snopes is one of the 1,000 most-trafficked websites in the country. There is a lot at stake.

But as mentioned, this is a family law blog. So what’s the family law perspective here?

When spouses co-own a business, it can be particularly difficult to divide it during a divorce. On the one hand, no one, including the court, wants to see a profitable business sold off. On the other hand, it can be difficult if not impossible for exes who have come through a bitter divorce to maintain the level of cooperation possible to successfully run a business. So, what do you do?

In Barbara and David’s case, they decided to split the company and, apparently, allow a third-party to perform many of the management functions. This is a completely reasonable solution. The problem David faced was, neither he nor Barbara faced any restrictions in whom they could transfer their interests to.

A matrimonial settlement agreement can and in a case like this, probably should consider the possibility of a sale and deal with it. A divorce lawyer drafting a separation agreement essentially has a duty to consider every scenario, and frankly, this one wasn’t too far-fetched. Now, to be fair, we can’t know the negotiations that led to this deal – David may have received some other kind of valuable consideration in exchange for not having restrictions placed on a sale. That said, he is now facing a nightmare. His valuable business, built from the ground up over many years, has become ensnared in costly litigation, and effectively ceased to function, as a direct result of his divorce. That reads to me as a lawyering fail.

Separation agreements are, to use a legal term, tricky. If you’re tempted to hire an inexperienced lawyer or one who doesn’t specialize in family law, or worse if you think you and your spouse can draft something on your own, think again. And of course, you can contact our firm to discuss this issue and any others pertaining to your family law matter,

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