Using Joint Assets to Fund Your New Company? Make Sure Spouse Renounces Funds if You Wish to Obtain Disadvantaged Business Enterprise (DBE) Certification
Many married couples have joint bank accounts. If one spouse uses joint assets to start a business, it may create problems when that business tries to apply for Disadvantaged Business Enterprise (DBE) Certification.
One of the requirements for DBE certification is that the socially and economically disadvantaged (SED) owner must provide proof of how they provided the initial capital to the business. 49 C.F.R. §26.69(i) provides the rules the certifying agency must follow when marital assets are used to fund ownership in a company. These include having the non-SED spouse provided an irrevocable renunciation of all rights in the ownership interest.
Ideally, such a renunciation would take place at the time that the joint asset is used to fund the company. However, that it not necessary. The United States Department of Transportation (USDOT), which oversees the DBE Certification program, has found that it “intends for the renunciation rule to encourage legally effective transfers to disadvantaged owners, not operate as a trap for those unaware of it.” In re Aviation Solutions Services, LLC, No. 19-0073, July 12, 2019.
This situation is often an issue when an SED owner no longer has access to the records showing their initial capital contribution. An example case is when an SED owner could not produce evidence of her capital contribution from 18 years prior and there was no spousal renunciation in the record. The applicant stated that the original bank records showing her contribution from her own, non-marital property no longer existed due to their age. While the Missouri Department of Transportation (“MODOT”) denied her, the USDOT sent the appeal back to MODOT instructing it to provide a form renunciation for the applicant and her husband to utilize. USDOT noted that it “does not intend for technicalities to impede sound program administration or deprive applicants of a fair, relatively speedy, accurate determination.” In re S&E Bobcat, Inc., No. 20-0058, July 27, 2020. Even though the SED owner said that she did not use joint assets to start the business, by providing a renunciation, it eliminated any potential doubt.
The USDOT made clear that “section 26.69 is not meant to be a permanent bar to eligibility because a non-disadvantaged party to a joint account did not execute a renunciation at the time of the capital contribution.” In re Hamilton Consulting Solutions Corporation, No. 20-0013, January 13, 2020. This acknowledges the very real situation that business owners are not necessarily anticipating applying for certification at the time their business is formed.