November 1, 2011

Business Divorces


Fall 2011

In the world of family or closely held businesses, transferring the business to the next generation can be a tricky and problematic exercise in futility and frustration. The past and future of the people closely aligned with the business depend on a successful transition. Control and power politics, combined with the emotions of a marriage, make a business transition difficult terrain to travel.

It is not uncommon for the best business and estate planning efforts to fall short of a smooth transition because the founder and leader often delays transfer of control and authority, avoids the tough questions, or seeks to force cooperation through estate and business planning. Coordinating trusts, estates, and business governance and authority can be complicated processes and require significant advance planning.

For a lawyer, the skills required are beyond estate planning or business governance. Solutions and resolution often require skills in tax planning, corporate dissolution and business restructuring, litigation support, estate and trusts, real estate, and securities. The lawyer will need the skills of a family practitioner to identify personalized issues and solutions. While the surface argument is money, the real process is often about personalities, grievances, and emotions.

The task of the lawyer in this context is not just litigation. Certainly, litigation attorneys often define their work in the context of court proceedings, which may be unavoidable but in a business divorce, mediation prior to litigation should be given serious thought. Whether in mediation or litigation, the business divorce lawyer needs to understand not only the business operations, finances, valuation, and accounting principles, but also the people involved, their needs, and what is driving their interests.

Complicating the process is the fact that business goes on, and someone needs to run things while the process is in play. This is sure to engender conflict and division. Mistrust between parties is a great divider, as are limitations on communication, imposed by parties on their counsel. Unlawful or sneaky actions that spur litigation rather than resolution may be taken by parties. Litigation is often a counterproductive step that seldom resolves the issues but is sometimes necessary to address strategic initiatives and to satisfy the parties on an emotional level, although the process is rarely cost-effective.

While many business disputes are resolved in a buy-out, through corporate reorganization, or by strategic agreement, the process for achieving resolution varies significantly for each situation and is strongly dependent on the personalities of the participants. Understanding these issues and having knowledge of the disparate legal and business issues is critical to an efficient and effective resolution. Retaining a lawyer who can meet these requirements is critical to leading to a resolution.

For more information on this topic, please contact or call (888) 598-7070.

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