From the Blog

Is it time for a business divorce? illustration of woman upset thinking about conflict

IS IT TIME FOR A BUSINESS DIVORCE?

Summary

This article explores why business disputes can be so expensive, especially if they are not resolved, and the importance of having properly drafted contracts prepared before doing business with others, even with people you like.

Over the years I’ve handled many different business “conflicts” — disputes between people who once really liked each other and who are in business together or who own real property together and whose relationship has completely broken down. They come to me when they are embroiled in a struggle for control and need the assistance of the courts, and a lawyer, to end the game of chicken.

hands pulling rope in struggle for control

The Inescapable Truth is That These Disputes Are Usually Difficult and Painful Regardless of How They End.

Just like when you’re going through an actual divorce from a once romantic partner, business dissolutions are often messy and emotional. Maybe even more so. They are characterized by intense feelings of betrayal and anger on all sides. They are especially contentious. They are difficult to settle. Money, it seems, triggers intense feelings of revenge in people who run all sized enterprises. It brings out the worst in the best of us.

For these reasons, these disputes are usually very expensive to litigate.

My advice to all my clients is to get your business relationship documented via the proper written agreements — preferably drafted by a lawyer who knows what she or he is doing — BEFORE you start doing business.

THIS IS NOT THE TIME TO D-I-Y IT!!!!

I once heard a Los Angeles Superior Court judge say that 85% of all cases filed in downtown Los Angeles are the result of people failing to nail down the terms of their deal in advance. I can’t tell you how many attorney hours are consumed (including by yours truly) understanding and unwinding the “arrangement” between originally well-meaning parties in a business deal gone wrong both before and during trial. It’s crazy how many people will bet the farm, blindly double down in a venture with someone they like, and risk their financial future without first having solid contracts in place. It takes even a creative lawyer a long time to figure out and explain what happened.

Most people who do business together begin by really liking each other. They think that things will never go wrong. They are so excited by the promise of their business venture, that they fail to plan for the inevitable time when disagreements will arise, or things don’t go smoothly or as planned, and they then want out. Unfortunately, getting out is not always so easy when you are heavily invested with another emotionally, financially and legally.

Trust is essential to all solid business relationships. And just like good fences make good neighbors, good contracts help make smoother business partnerships, especially when things aren’t going quite as planned.

WHY THESE CASES ARE SO DAMN EXPENSIVE?

These cases can become quite expensive, not only because of the intense and emotionally charged atmosphere they are imbued with, but also because they can require expensive third-party experts (did I mention expensive??) to help decide their fate by figuring out who owes who how much. These experts include forensic accountants (who especially love it and lick their chops when I call with a business fraud case), real estate appraisers and business valuation experts. Their retainers at the time of writing this post average $5,000 – $10,000, just to look at your case. When it’s time to depose those experts…. you have to compensate them for their time at deposition, as well your lawyer to take the deposition and pay the court reporter for the transcript.

Do the math.

A solid contract may not prevent a business relationship you are in from breaking down, but as they say “an ounce of prevention is worth a pound of cure.” This is especially true in nasty business disputes and dissolutions involving individuals and enterprises of all shapes and sizes.