Business Divorces – A Messy Affair

When spouses divorce, it can get nasty. The word “divorce” itself conjures up cringe-worthy images of vicious arguments and broken relationships.

When business partners split – and go through a “business divorce” – it can be just as ugly. Often times, the divorcing business partners have more to fight over than spouses would – more assets (or debt!), ongoing customers, intellectual property ownership, the right to continue the business, control… the list goes on.
But divorce is rarely contemplated during business formation. To the contrary, entrepreneurs are filled with high hopes and aspirations (as they should be) when opening shop, and shun the possibility that things may not work out with their partners.

Consequently, their shareholders agreement (or operating agreement, in the world of LLCs) covers business operations when things are rosy – but is silent as to what happens when things go sideways. Much to the disgruntled partners’ chagrin, the shareholders agreement fails to spell out what happens if the partners reach an impasse.

So what happens in this situation when one partner wants out? Too frequently, litigation – an ugly, expensive and time-consuming lawsuit that damages, if not destroys, the entire business.
The solution to this mess is avoiding it on the front end – not after the gloves come off. If you are forming a company with partners (even those you trust), you owe to yourselves to clearly spell out exit plans if you and your partners can’t agree. Of course, if a dispute is already brewing – you’ll need a good attorney!

To learn more about business divorces and other issues in Corporate and Employment Law, please contact Thomas M. Shepherd, Esq. at [email protected] or (404) 492-8871.