SEPARATION AGREEMENT

Exhibit 10.3

SEPARATION AGREEMENT

     This Separation Agreement (the “ Agreement ”), dated as of April 20, 2009 (the “ Effective Date ”), is entered into between Martha Stewart Living Omnimedia, Inc. (the “ Company ”) and Wenda Harris Millard (“ Ms. Millard ”).

     WHEREAS, the parties are party to an Employment Agreement dated as of September 17, 2008 (the “ Employment Agreement ”), pursuant to which Ms. Millard serves as the Company’s Co-Chief Executive Officer and President — Media;

     WHEREAS, Ms. Millard has informed the Board of Directors of her intention to voluntarily resign from her positions with the Company other than for Good Reason (as defined in the Employment Agreement) pursuant to the terms of this Agreement effective as of the Effective Date; and

     WHEREAS, the parties desire that, subject to the terms and conditions set forth herein, Ms. Millard shall cooperate with the Company to assist in the transition of her responsibilities;

     NOW, THEREFORE, in consideration of these premises and the mutual covenants hereinafter set forth, the parties agree as follows:

     (i) resign as of the Effective Date (which date shall constitute the “Date of Termination” for purposes of the Employment Agreement) as the Co-Chief Executive Officer and President — Media;

     (ii) cooperate with the Company in efforts to effect an orderly transition; and

     (iii) execute and deliver the Waiver and Release of Claims within twenty-five (25) days after the Effective Date in the form attached hereto as Exhibit A (the “ Waiver and Release of Claims ”).

(b) The Company shall:

     (i) pay Ms. Millard in accordance with payroll practices the amount of her Base Salary (as defined in the Employment Agreement) and unused vacation time, each prorated on a daily basis, that was accrued and unpaid as of the Effective Date; and

     (ii) have amended that certain Notice of Stock Option Grant and Stock Option Agreement awarding Ms. Millard an option in respect of 330,000 shares of the Company’s Class A common stock granted on March 2, 2009 (all of which is currently unvested) (the “Option Agreement”). The Option Agreement shall have been amended to provide that the option shall terminate as to 230,000 shares on the Effective Date and remain outstanding in respect to 100,000 shares and

become exercisable with respect to such 100,000 shares on the 18-month anniversary of the Effective Date (the “Amended Option Agreement”), provided that as of such anniversary date Ms. Millard is not in breach of her obligations under the Employment Agreement, including without limitation Section 10 thereof. In the event that the option in respect to 100,000 shares becomes exercisable pursuant to the Amended Option Agreement, the option shall remain exercisable for a period of 12 months from the date of vesting. In the event Ms. Millard breaches such obligations, such option will immediately terminate. Any equity-based awards granted to Ms. Millard that have become vested prior to the Effective Date shall remain outstanding in accordance with their terms.

     (c) Notwithstanding anything in the Employment Agreement to the contrary, except as explicitly provided herein Ms. Millard shall not be entitled to any further payments or benefits under the Employment Agreement except as provided herein.

     2. Subject to Section 1 of this Agreement, nothing in this Agreement shall be construed to amend or modify the terms of the Employment Agreement, including without limitation Section 10 thereof. Ms. Millard acknowledges and agrees that the voluntary termination of her employment is not a termination by the Company “without Cause” or a termination by her for “Good Reason” (each as defined in the Employment Agreement). Accordingly, Ms. Millard shall not, and is not entitled to, receive any severance payments or other benefits pursuant to the Employment Agreement or the Company’s 2008 Executive Severance Pay Plan and, except as otherwise provided in the Amended Option Agreement, no equity-based awards granted to her pursuant to the Equity Agreements (as defined under the Employment Agreement), the Option Agreement or any other equity-based award granted pursuant to the Omnibus Plan (or any predecessor plan or agreement) shall accelerate and all unvested equity awards shall be forfeited and cancelled and of no further force or effect.

     3. Ms. Millard acknowledges and agrees that her execution on the date hereof and the enforceability of the Waiver and Release of Claims is an integral part of, and a material inducement to the Company to enter into, this Agreement and agrees that in the event that either (i) Ms. Millard fails to execute and deliver to the Company the Waiver and Release of Claims within twenty-five (25) days after the Effective Date, or (ii) Ms. Millard revokes the Waiver and Release of Claims as provided in Section 9 of the Waiver and Release of Claims, the Company may in its sole and absolute discretion revoke this Agreement by giving written notice to Ms. Millard, in which event this Agreement shall be deemed null and void ab initio, as will the Amended Option Agreement.

     4. Ms. Millard’s contribution to the Company’s 401 (k) plan (the “401 (k) Plan”) will cease upon her termination pursuant to the terms of the 401(k) Plan. Ms. Millard shall be entitled to distribution and/or rollover of any vested amounts under the 401(k) Plan in accordance with the terms of the 401 (k) Plan. To the extent that Ms. Millard does not vest in any portion of the Company contribution for 2009 under the 401(k) Plan as a result of her not being employed on the last day of the plan year, Ms. Millard shall receive a separate cash payment from the Company promptly following the date the Waiver and Release of Claims becomes effective, not to exceed the amount of maximum match contribution set forth in the 401(k) Plan. Ms. Millard’s active participation in any of the Company’s employee benefit plans and arrangements shall end

as of the Effective Date and she shall retain all rights to vested benefits payable in accordance with the terms of such employee benefit plans. In addition, until such time as Ms. Millard is entitled to medical benefits from another employer, but in no event for a period of longer than one (1) year from the Effective Date, the Company shall reimburse Ms. Millard for the portion of COBRA benefits Ms. Millard pays in an amount equal to the contributions that the Company would have made on her behalf had she remained an employee of the Company (i.e., Ms. Millard will not be reimbursed for that portion of the COBRA premium equal to the amount that was deducted from her payroll for such benefits when she was an employee).

     5. Promptly after the Effective Date, Ms. Millard shall submit to the Company a reimbursement request, with supporting documentation as required by the Company, for any reasonable business expenses incurred through the date hereof with respect to which Ms. Millard is entitled to be reimbursed pursuant to Section 4(b) of the Employment Agreement (“ Reimbursable Expenses ”) and the Company shall promptly reimburse Ms. Millard for such expenses (or pay such expenses directly if requested pursuant to the following sentence). Ms. Millard shall promptly pay any expenses that Ms. Millard incurred with respect to which the Company could be liable (e.g., expenses incurred on any corporate credit card if the Company may be liable for the payment thereof); except that Ms. Millard may request the Company to pay directly, in accordance with the Company’s policy and procedure, any Reimbursable Expenses incurred on her Company American Express Corporate Card.

     6. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Employment Agreement.

     7. This Agreement, the Employment Agreement, the Amended Option Agreement and the Waiver and Release of Claims constitute the complete and final agreement between the parties and supersede and replace all prior or contemporaneous agreements, negotiations, or discussions relating to the subject matter of this Agreement, the Employment Agreement, the Amended Option Agreement and the Waiver and Release of Claims. This Agreement may not be amended except in a writing signed by each of the parties hereto. No waiver of any right set forth in this Agreement shall be effective unless set forth in a writing signed by the party against whom the waiver is to be enforced. All provisions and portions of this Agreement are severable. If any provision or portion of this Agreement or the application of any provision or portion of this Agreement shall be determined to be invalid or unenforceable to any extent or for any reason, all other provisions and portions of this Agreement shall remain in full force and shall continue to be enforceable to the fullest and greatest extent permitted by law. This Agreement shall be binding upon and inure to benefit of each party’s respective successors and permitted assigns. The word “including” shall mean “including without limitation.” As used herein, the plural includes the singular and the singular includes the plural, unless such a construction of such sentence would be unreasonable. Titles and headings to Sections in this Agreement are inserted for convenience only and are not intended to be a part of or to affect the meaning or interpretation of the Agreement. The parties acknowledge that they are entering into this Agreement after consulting with counsel and based upon equal bargaining power and that the attorneys for each party have had an equal opportunity to participate in the negotiation and preparation of this Agreement. The terms of this Agreement shall not be interpreted in favor of or against any party on account of the draftsperson, but shall be interpreted solely for the purpose of fairly effectuating the intent of the parties hereto expressed herein.

     8. Except for issues or matters as to which federal law is applicable, this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the conflicts of law principles thereof. The federal and state courts located in New York County, New York, shall have sole and exclusive jurisdiction over any dispute arising out of or relating to this Agreement, and each party hereby expressly consents to the jurisdiction of such courts and waives any objection (whether on grounds of venue, residence, domicile, inconvenience of forum or otherwise), to such a proceeding brought before such a court.

     By signing below, the Company and Ms. Millard acknowledge that they have carefully read and understood the terms of