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Are You Heading for a Business Divorce?
TOP 10 Causes of Business Divorce

A business owner who can identify with any of the following 10 statements should seek the advice of counsel experienced in business owner relations and business divorce:

1 One owner believes he is contributing more to the business than another and not being paid enough for it.  No one will tolerate carrying an extra or unfair burden for the long run without adequate additional compensation, even if the inequality in contributions is due to illness, disability, family issues or other understandable causes. The owner who believes he is working harder and not being paid for it will resent the over-compensated owner or view him as “dead weight.” Whether an owner truly is contributing less or is merely underappreciated, perception of inequality leads to dispute.

2 Owners disagree over credit for success or blame for failure.  Business owners that lack a “team” mentality, whether because they are not equally devoted or equally effective or because one owner has an inflated ego and a warped perception, will not stay together for long. This issue may be particularly acute when there are passive investors, as they may second guess management’s decisions.

3 Owners who play different roles fail to communicate regularly and effectively about their respective efforts.  It is not sufficient for a business owner to work hard and perform well; he must make sure that the other owner is aware of the hard work and achievement. Failure of communication is likely to lead to problem #1 or #2.

4 One owner’s way of contributing to the business is becoming less important.  The business world applies a harsher standard than “what have you done for me lately.” Business owners look at each other and ask, “What are you going to do for me tomorrow and the next day?”

5 An owner is approaching retirement without a current buy-out agreement.  As retirement nears, there is reason for concern if the owners do not have a current, mutually acceptable buy-sell agreement in place. If the buy-sell agreement is old, one of the owners is likely to be dissatisfied with the buy-out price and terms. A retiring owner is particularly likely to be dissatisfied if the buy-out terms will not allow him to maintain his desired standard of living.

6 One owner wants to bring the next generation into the business, and the other does not.  Disputes often arise when one owner wishes to pass the business to his children and the other owner does not. And even if the owners agree to bring in the next generation, the issues of when and how are often difficult to resolve, particularly as the circumstances for each owner and his children are different.

7 Transitioning control of the business is occurring without a good succession plan.  Transitioning a business from one generation of owners to another can be a great challenge in any business, and especially in a family business. Furthermore, if a business owner dies or becomes disabled without having an agreement in place for the buy-out of his interests, or if the buyer has not been adequately prepared to assume management responsibility, the business may be in turmoil. Without a well conceived and well executed succession plan, the relationship between the old and new owners is likely to lead to disputes.

8 Business partners did not choose each other.  A business owner who sells or transfers the business to a group, whether comprised of family members or long-time trusted employees, may be leaving his successors in a battle over the business unless each of the group members wants to be a partner with the others.

9 Owners have different perceptions or goals for the future of the business.  Owners with different perceptions or goals are fundamentally incompatible. The owner wishing to pursue growth opportunities will be willing to sacrifice and invest for the future, and he will view a business partner who is content with status quo or more risk averse as an obstacle. Similarly, if one owner wants to sell the business and the other does not, the owner wishing to sell may take actions to “motivate” the other owner to buy.

10 Family or personal challenges exist or arise between business owners.  Personal issues have a way of spilling over into the business, even if the business owners attempt to compartmentalize their feelings. If the owners have difficulties getting along outside the business, it becomes extremely difficult to remain compatible business partners. In a family business, sibling rivalry, domestic divorce and resentment over inheritance destroy business relationships.

This document is intended for general information purposes only. The reader should consult with knowledgeable legal counsel to determine how applicable laws apply to specific facts and circumstances. See “Disclaimer.”

Curt Golkow Photo
Curtis L. Golkow
Attorney At Law

Two Penn Center Plaza
Suite 910
1500 John F. Kennedy Blvd.
Philadelphia, PA 19102

T: 215.814.9090
F: 866.521.9742
e-mail Curt
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