When you are married to someone you have a lot of mutual responsibilities to each other. It is up to you both to resolve those responsibilities. If you cannot resolve your mutual responsibilities, you file for divorce and, in Illinois, the Illinois Marriage and Dissolution of Marriage Act outlines what happens as you dissolve your relationship. You or your spouse may, however, have other relationships that invoke mutual responsibilities. If you or your spouse have business partners, there is a fiduciary duty between the business partners. It is not uncommon for a divorce between a married couple to coincide a “divorce” between one member of the couple and their business partner(s). As someone’s personal life crumbles, often their professional life collapses as well. Business Divorce And Fiduciary Duty In Illinois The division of a business by business partners, a “business divorce,” does not follow always follow a statute, business divorces follow the operating agreement (which is like a prenuptial agreement for a business). Businesses rarely unwind unless there has been some breach of trust between the parties due to fraud or negligence. After, all, why not keep a good thing going? The operating agreements rarely contemplate a horrendous act of fraud or negligence which would necessitate a business divorce. The common law tort of breach of fiduciary duty allows the aggrieved business owner to identify the fraud and receive compensation from their former business partner. When a business owner breaches “a legal or equitable duty arising out of a fiduciary relationship, a presumption of fraud arises….This type of fraud is called ‘constructive fraud.” Vermeil v. Jefferson Trust and Savings Bank of Peoria, 176 Ill. App. 3d 556, 564 (1988). To prove constructive fraud, a party must demonstrate “(1) a fiduciary relationship; (2) a breach of the duties that are imposed as a matter of law because of that relationship; and (3) damages.” Kovac v. Barron, 2014 IL App (2d) 121100, ¶ 64 (citing Lawlor v. North American Corporation of Illinois, 2012 IL 112530, ¶ 69) Significantly, “[c]onstructive fraud can arise only if there is a confidential or fiduciary relationship between the parties.” Prodromos v. Everen Securities, Inc., 341 Ill. App. 3d 718, 726 (2003). The business partner must establish that there was a fiduciary relationship. “Illinois law recognizes two types of fiduciary relationships—fiduciary relationships as a matter of law and fiduciary relationships as a matter of fact.” Shrock v. Meier, […]
