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Business Divorce

Business divorce cases are exactly what the name sounds like – a situation in which two or more business owners decided to part ways and end their business relationship(s) together. Sometimes this is a decision ultimately reached by the parties after a period of contentious deadlock, and other times it is a result of other uncontrollable factors, such as the death of a business partner or another partner’s departure from the relationship. Business divorces can get messy, as various interests, both financial and personal, are at stake. People do not want to give up on a company that they’ve started, helped grow, inherited from their parents, and which likely is the source of a large portion of their livelihood. Oftentimes, the messiest business divorces are those who involve people that were close before the business was formed, such as family or close friends. Consequently, handling business divorce matters can often require keen sensitivity to the non-business relationships at stake, as well.

Handling business divorce is complex. Depending on each person’s desires, the resources available to them (and, as a business partner, it bears mentioning that a portion of those resources is somehow tied to the business), each person’s actual percentage of ownership in the company, and other important considerations – such as controlling law, the type of entity, and provisions in governing documents – a separation may become quite messy, and even lead to litigation. Ideally, if such contentions did arise, strategically negotiating with your business partner(s) would be the course of action to take. Our attorneys will quickly evaluate the situation, its underlying facts, and strategize to help advise you on coming to an amicable solution which satisfies your needs.

Attorneys who handle business divorce matters must have a keen eye to all the factors at play. Certain state laws allow the preclusion of certain “resolutions” such as dissolution, if accounted for in the business’s governing documents, for example – even if that’s what everyone involved eventually ends up wanting to do. There are other legal issues which attorneys must pay attention to, such as whether actions of certain partners constitute breaches of fiduciary duty (read more here) and whether piercing the corporate veil (holding a corporation or LLC’s owners/members/shareholders personally liable for wrongdoing) is necessary. But naturally, a business divorce has more that has to be considered than just legal issues. Our attorneys also have a strong foundation of knowledge in broader business and financial issues, which helps us protect your interests and understand what is at stake.

When ownership interests involve a variety of assets or are otherwise tied up in a complex way, it can be difficult to parse what is fairly yours. How does one decide the value of, and correctly allocate, a company’s intangible assets, such as any trademarks, product names, or the business’s name itself – especially if one partner wishes to continue the business’s activities? If the company is being dissolved, terminating the business entity is only one part of the whole process – including handling any company debts, ending existing vendor or other contractual relationships between the company and others, and handling existing relationships with clients.

If litigation is unavoidable, one must take swift action. The type of action depends on many factors, including whether the client controls the company and whether the client wants the company. The client should adopt a successful litigation strategy early on. The client must keep in mind, however, that litigation can be devastating to the company and should adopt a litigation strategy that is minimally obstructive to the business operation.

At KHF, our attorneys are attuned to all of these issues and can advise you towards the course of action that is best for you and your needs. We are prepared to handle a variety of business divorce issues, no matter your share in the partnership, or the type of governance structure you are a part of. If you are also forming a business, we can advise you throughout drafting the governing documents to ensure that any provisions regarding a partnership separation (a “business prenup”) will make a potential future divorce – if one should have to happen – go as smoothly as possible. If such a major dispute arises, we can also guide you through the litigation process, including trial.