Here’s How to Prepare for a Business Divorce
A business divorce is among the most upsetting things to a business owner. It occurs when partners separate, when a partner passes away, quits on less than friendly terms, or it could even occur when a partner leaves with the company’s proprietary and sensitive information. If you see a business divorce in your future, this blog post will help you prepare by providing a framework and some considerations to keep top of mind.
Consult a knowledgeable lawyer
We know. This is obvious advice coming from a law firm, right? However, it would be remiss of us not to remind you that partners who try to handle a business divorce on their own can cause irreparable harm to their personal and business interests.
Your business divorce lawyer should have experience in key areas related to business agreements or disputes, including:
- Non-competition Agreement Enforcement/Defense
- Intellectual Property Protection and Trade Secret Protection/Defense
- Breach of Contract
- Interference with Contract
- Interference with Prospective Business Advantage
- Business of Professional Defamation or Disparagement
- Unfair Competition – Unfair Trade Practices
Gather agreements early on in the dispute
In addition to consulting a lawyer, you should gather all business agreements and documents early in a dispute. For example, in a business divorce, there will be a list of wishes and demands you would like your lawyer to follow through on. However, without a realistic and educated grasp of the partnership agreement, any effort by your lawyer to get you what you want may be null. You or your partner may make demands expressly prohibited by the contract. What’s more, if you breach a provision in the agreement, your leverage dwindles, along with your strategic position in negotiations.
Don’t forget the tax implications of a business divorce
Significant tax complications may occur, particularly in alternative business forms like partnerships and limited liability companies. A partner may believe threatening to leave the organization is a smart strategic move. However, he may not have expected a recapture tax bill, for instance, if he has a sizable negative capital account. Threatening to dissolve the business may be a wise move in some circumstances. But suppose substantial assets will be sold or allocated to the partners. In that case, the parties must be aware that dissolution could result in a sizable liability of capital gains.
Consider the effects on outside parties
If a loan agreement contains a clause forbidding major business ownership changes, then a business divorce may be considered a trigger for default. Similarly, if the owners devote their time, resources, and energy to internal company problems, vendors and customers can start to worry about the stability of the business and its capacity to meet its obligations. Partners must carefully consider how an uptick in hostilities may affect the behavior and perspectives of important external business connections.
Consider what an efficient business divorce can save you
Similar to marital divorces, business divorce litigation can be exceedingly expensive. In the face of a business divorce dispute, which might involve complex legal and factual concerns and emotional pressures that cause the parties to take extreme and hard-ball stances, the normal guidelines for estimating litigation expenses seem to break apart. Too frequently, partners find themselves speeding towards a lawsuit when something less drastic would have been more efficient.
Contact Our Business Divorce Lawyers Today
Business divorces are inherently unpleasant (even the name suggests a disagreement). However, there is no denying that negotiating and reaching a resolution between co-owners is the most efficient way to separate. However, if litigation becomes a certainty, we are prepared to fight for your rights in court. If you are in a situation where you believe a business divorce is imminent, contact us online or call us at (901) 737-7740 to schedule a free consultation. We serve Memphis, TN; St. Louis, MO, and surrounding areas (including Germantown, TN, Collierville, TN and Clayton, MO).