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Business Divorce: How to Prepare for and Deal With It

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Dealing with Business Divorce

Ah….February, the month for lovers and titans. This month includes Groundhog’s Day, the Super Bowl and Valentine’s Day.  It is fitting that all three occur so close together.  Love, battle and repetition (think the movie not the actual mammal) all within 28 (although this year 29) brief days.  There is a theme within business law as well that follows this path. It happens during business formations and when that business then undergoes a business divorce.

When people come together to form a business, there is a sense of love among them.  They trust one another; have faith with one another; and believe their success is dependent on the other.  When there is discourse within that business (typically over control, money or debt), the battle can mirror that of NFL teams (and the cost can mirror the cost for commercials during the Super Bowl).  As a business lawyer for over a quarter century, I have seen this same path played out so many times I look over my shoulder for Bill Murray.

The most protracted and expensive litigation I find myself in is that which relates to a business divorce.  This is where different factions within the business have come to a place of distrust and no longer want to be a business with the other faction or factions.  Just like a traditional divorce, often business divorces carry emotional baggage.  Also just like a traditional divorce, at the end of it both parties can be emotionally and financially depleted.  Finally, just like in a traditional divorce, the lawyers always come away flush with the parties’ money.

Litigation over dissolution of a business is completely preventable.  Let me say it again, you can avoid the time, emotion and cost of litigation.

The prevention is extraordinarily simple and, comparatively, inexpensive.  If you have a partnership, create a written partnership agreement.  If you have a corporation, create a shareholder agreement.  If you have a limited liability company, create an operating agreement.  Generally, the costs for each of these agreements are less than $5,000.  If they are drafted correctly, they can outline how to resolve disputes without litigation. Comparatively, the cost of litigation over the dissolution (divorce) of a business can easily exceed $100,000 – on each side.

Even if your business currently does not have the proper agreements, it is not too late.  You can form or change them at any time.  So, keep the love in your business and watch the Super Bowl with your business partners.

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