Reader Jonathan Handel—he of the Digital Media Law Blog—sent me the following interesting inquiry:
I’m wondering if you have any thoughts in regards to a gay rights issue related to drafting various corporate documents. This question may be on the edge as to whether it’s a drafting issue or a substantive one, but I figured I’d ask your thoughts.
In any case, the issue is this: the concept of “spouse” arises in some of these typical corporate documents. For instance, an investment in illiquid securities of a closely-held co. may require that a Spousal Consent be executed. Or, a shareholder agreement or LLC operating agreement may prohibit transfers of shares or units to third parties, but with a carveout for “spouses.”
After reviewing some of these corporate docs, it occurred to me that the forms should probably be revised to also encompass (1) spouses in same-sex marriages, (2) (registered?) domestic partners, and (3) (registered?) civil union partners. This is because state law in some states, such as Cal., grants people in these relationships the same rights (and responsibilities) as married couples.
So, my question is, do you have any recommended or consensus language in this area? Any help would be appreciated.
I have no expertise in this area. Readers, I encourage you to weigh in.
This could, as Mr. Handel indicates, be either a drafting or a substantive issue, and the first thing to do, it seems to me, is determine which it is. If the goal is to establish these spousal substitutes as equivalent to conventional spouses under all circumstances, then it’s substantive, since it will probably be imposing unanticipated costs on one party that should be negotiated. If the objective is merely to respect the laws of the jurisdictions that afford these rights and not therefore to appear to abridge them, then the appropriate drafting solution should be to define “spouse”–or use some other term where you can include “spouse” as part of the definition–to include all these other relationships *to the extent the laws of the jurisdictions governing the domestic relationships of the affected person so admit.* In one sense that is a redundancy, but if local law permits opting-out in contracts, then you do need to say something to avoid ambiguity of intention. I prefer the Anglicism “admit” here rather than “permit,” thinking–perhaps erroneously–that it carries the flavor of something contemplated by the statutes rather than something made up off the top of the parties’ heads, which would be the case in the “substantive” example I mention above.
It seems that the drafer’s intent is not to create property rights, but rather to address contractually any spousal property rights that might exist as a matter of law in a traditional marriage (i.e., one in which there are only two persons of different genders and whose formal marriage is legally recognized by the state). The two situations given require quite different drafting approaches.
In the context of a traditional marriage, the nature of those spousal rights are well understood and are generally consistent throughout the U.S. For example, one might draft a clause permitting a spousal exception to transfer restrictions (recognizing the accrual of community property rights), or to obtain a release of possible spousal ownership rights in connection with a transfer of property to a third party.
With other relationships, the nature and extent of those rights is less clear, as may be the extent of their recognition between states. For example, would Texas courts respect the “spousal” rights to property located in Texas which are asserted by a same-gender domestic partner in a non-traditional marriage that is legally recognized by Massachusetts?
I suppose one could secure a release of “any” property right, to the extent that the spouse has an interest – without concluding that s/he actually has any interest and without inadvertently creating any sort of implied right.
It seems to be a different drafting exercise where the intent is to contractually create a right that might not exist as a matter of law. For example, to permit transfers of shares to legally-recognized domestic partners where the nature of that relationship might not be universally respected and the associated property rights may not be uniformly recognized.