Divorce Case Highlights Need for Plan

Divorce Case Highlights Need for Plan

Terra Pelley filed for divorce from Hunter Pelley on April 13, about a month shy of their 10th wedding anniversary.

Arkansas Business doesn’t usually report on divorces, but this divorce case involves a married couple who have ownership interest in Pelley Construction Inc. of Flippin, which builds concrete foundations for water, storage and industrial tank installations.

Terra is the majority owner, Hunter is a 34% owner of the company, and Terra’s son from a previous marriage, Jay Newport, owns 15%.

Terra’s attorney, John Everett of Farmington, said depending on how the judge in the couple’s divorce case rules, Pelley Construction might have to be sold and then the proceeds divided among the owners.

Everett said there wasn’t a plan for the business in the event the couple filed for divorce.

“Like most divorces, people don’t get married thinking about what’s going to happen when they get divorced,” Everett said.

The case highlights the messy issues that can arise when married business owners file for divorce.

Michael Flannery, a law professor at the University of Arkansas at Little Rock’s Bowen School of Law, suggested that people who form a business consult a business attorney first to address potential turmoil, such as what happens if one of the business partners files for divorce.

“The best advice for anybody is to foresee those kinds of problems from the beginning,” Flannery said.

Flannery, whose classes include decedents’ estates and trusts and family law, has no involvement in the case. “The problems arise when you don’t anticipate this happening,” he said.

One solution is to have a prenuptial agreement or a postnuptial agreement in place in which the parties have agreed how they’ll distribute the assets “if, or when, they get divorced,” he said.

“To the extent that the parties agreed to this on the front end, it makes it a lot easier for the court to resolve these issues.”

The problem, of course, is that few people enter a marriage thinking of how it might end.

But if there’s no plan, a typical solution is for one side to buy the other out so that one party can maintain and operate the business.

Or if that doesn’t happen, a judge can order that the business be sold and then the couple split the company’s proceeds. “But that entails a long process of valuing the business and determining what each party’s interest in the business is,” Flannery said.

The legal problems between the Pelleys started last year when Terra and her son sued Hunter Pelley both individually and as a shareholder derivative action.

In the lawsuit filed in Marion County Circuit Court, the plaintiffs accused Hunter of transferring $400,000 from the company’s operating account to his personal account. That money has been placed in a court registry, where it remains.

Allegations against Hunter include breach of fiduciary duty and interference with business relationships. Terra withdrew her case, but her son’s case remains.

Hunter’s attorney has asked that case be dismissed over the question of whether Hunter was properly served, and that decision is pending.

Meanwhile, Terra filed for divorce a second time in April. She had filed for divorce last year, but withdrew the case about two months after filing it.

Also in April, Terra and her son filed another lawsuit, both individually and on behalf of the construction company, against Hunter. The allegations in that lawsuit are similar to the ones in the 2022 filing.

One of Hunter’s attorneys, Barrett Moore of Blair & Stroud of Batesville, declined to comment because the case is in litigation.

Newport’s attorney, Andrew Myers of Taylor Law Partners of Fayetteville, said his client is “seeking just compensation for his interest in the company. I know that’s as vague as you can make it, but that’s all I’m at liberty to say right now.”