Business Divorce: What We Recommend and Why

As a boutique business law firm, we don't handle divorces or family law but we do inevitably assist with more than a few so-called "business divorces."

At Calkins Law Firm, when we assist with organizing a business, we do our level best to anticipate and plan for any and all contingencies in the organizational documents. And yes, that includes provisions for a possible future business split, or business divorce.

Just as with a marriage, where some folks opt to work out prenuptial agreements, the same sorts of reasons that are often behind that decision apply here-it's all about protection in the end. When new business owners are caught up in the throes of growth and the newness of the endeavor, a business divorce is the furthest thing from their minds. But when time passes and a clean break feels like the best way forward, it can be tricky if the proper plan isn't already in place.

Business divorces are more straightforward when all parties involved have documented their relationships carefully, anticipating and planning for any and all contingencies, including a split up. That's why we tell clients about the compelling value of thoughtful business planning along with well-considered and carefully-crafted documentation, done on the front end! These will always be time and money well spent in our book.

At the same time, many clients approach us without any documentation of their relationship(s), or with wholly inadequate documentation that does not begin to anticipate and plan for a business divorce. For these folks, there was no upfront planning done, and we have to essentially reverse engineer the situation. We work closely with the client to bring about a result that is satisfactory to them, ideally without heading to court for a time-consuming, expensive, and potentially destructive trial.

While guiding these clients, we are always mindful of applicable laws governing partnerships, limited partnerships, limited liability companies and corporations, and other entities, including any relevant court decisions that could stand as a precedent or otherwise inform the case at hand. Even so, despite established law and clear precedent, business divorce situations are generally fraught with uncertainty and even peril for the parties involved and for the business itself.

In some instances, and if our client wishes to, we will work to arrange for a simple buyout from their co-owner. Other times, our client may want to sell, and we can facilitate the sale on acceptable terms. And sometimes--albeit rarely--an equal split down the middle can be a viable path forward. In all these types of situations, we have certainly seen cases where the feuding parties simply cannot agree. In scenarios like these, a russian roulette solution can often work well to bring the matter to a close. Another option that could satisfy both parties may be selling the business to a third party.

Does business counseling work in cases like these? I suppose it could, but perhaps only as often as marital counseling would work after a spouse has gone so far as to contact a divorce attorney. In other words, not very often.

Try as we may, it is inevitable that some business divorces deteriorate into court action, which can be protracted and have heavy costs for the parties involved and the business itself. We will always advise our clients to work toward engineering something short of a knock-down, drag-out battle.

The lessons for clients here are two: First, an ounce of prevention can be worth a pound of cure. Formation documents that are carefully and thoroughly drafted, and that both anticipate and plan for any and all contingencies (including a possible business divorce) are worth their weight in gold. Second, if you are confronted with or are heading toward a business divorce, by all means retain counsel with a depth and breadth of relevant experience to assist in engineering a resolution that you can live with, and that can keep you from a lengthy, expensive court trial.

At Calkins Law Firm, we will always try to negotiate an outcome that avoids an unnecessary or avoidable investment of time or treasure. And a big part of that comes down to accurate and extensive documentation on the client's end. You might not relish planning for a possible-maybe-someday split up, but when that day becomes a reality you'll thank your past self for having the forethought to plan ahead. Get in touch with us today to be sure that your best interests are always considered when planning your next business venture.