Defining Sweat Equity
the value of unpaid labor
Sweat equity:
a. the interest or value in a business venture achieved by a person’s labor, time, or strategic planning
b. ownership interest in a company resulting from one’s unpaid investments by way of time and labor
Note: Sweat equity is a term that comes up frequently in contract and business lawsuits, but it is also important to remember the value of unpaid time, labor, and thought in our daily lives. One is not paid to study for an exam or clean their room, but these actions have an immense positive value towards our future successes.
Example, by way of story:
She owned a thriving plastic surgery on-demand medical practice, earning well over two million dollars a year. Her husband, although not a physician, voluntarily contributed to the successful launch of her medical practice: he planned all of the company’s holiday parties, drove her and her colleagues to and from the different assignments, carried different odds and ends wherever she asked, he answered the phones, wrote thank you notes on his wife’s behalf, and made her coffee every morning, all while working part time at a climate justice center and raising their five young children.
When his wife would come home each night she would show him the wads of cash she had earned that day for her work. She’d often say something to him like “Isn’t it funny I earn more in one day than you make in a month? Ha!” If she didn’t like what he had prepared for dinner that night, she’d scream, “I work all day, I’m a physician earning over two million dollars a year…and you’re serving me dog food?” Sometimes, she would throw the plate of food against the wall, and proceed to order take out for herself. “I can’t believe I married such a worthless human being,” she would mutter to herself, always loud enough so that he and their five children could hear.
He would quietly clean up the mess, but he would wait a day, because he was in too much physical pain right after her outbursts, the emotional harm somehow seeping into his joints. The food stains never fully came off of the walls, staring back at him as a reminder of his failure to earn enough to provide for his family something as simple as clean walls in their home. For years, he internalized her statements that he earned so much less than her, that all he had to do was take care of their five children, and work, as she called it, “a fluff secretary job.” He started to think maybe she was right, maybe he was worthless.
Eventually, through the generosity of others, he found the courage to leave this marriage. He filed for divorce. His wife refused to give him a single penny of alimony while he searched for full-time work, and he had to plea to the Court for help, which eventually resulted in a financial trial. When ruling upon division of the marital assets, the Court decided that the wife’s burgeoning plastic surgery on-demand medical practice was worth approximately three million dollars.
Because the husband had testified about all of the unpaid time and labor he put into the building of this successful business, the Court awarded him 50% of the business’s value, stating in its decision, “Mr. Z’s sweat equity, both to the business directly and to the caring of the Children while Dr. Z worked, directly contributed to the financial success of Dr. Z’s medical practice. Therefore, Mr. Z deserves $1.5 million dollars, which is 50% of the value of the business.”
Disclaimer: The information contained within “Defining Money” and each inter-connected post is for educational and entertainment purposes only. The ideas, statements, and words contained herein are not intended as legal advice. Aside from the nonfiction directly related to finance and business law definitions, any examples, stories, poems, or other language is fiction. Any resemblance to actual persons, living or dead, events or locales, is entirely coincidental.