Breaking Up (Your Business) is Hard to Do…But Here is How it Can be Easier

By October 12, 2012

By Todd A. Levine
I handle many so-called “business divorces,” where partnerships or other business entities split up.  Because I am a trial lawyer, most of these cases are already heading towards litigation when the client first consults me.  However, I find it is generally in the client’s best interest to avoid litigation where possible.  Therefore, I usually suggest or agree to participate in a pre-litigation mediation to accomplish an amicable business divorce.  It is important, however, for the client to carefully consider exactly what he or she hopes to take away from the dissolution, if a settlement can be reached.

These disputes may settle at pre-litigation mediation, only to have new issues arise when the parties later realize unresolved issues remain which were not considered or addressed at mediation.   Typically when businesses split, the terms of the settlement focus on financial issues.  Problems can arise when the parties don’t give enough forethought to the non-monetary items that the lawyers may not realize exist or are important to the client, because the client hasn’t properly informed the lawyer.  This may include ownership of telephone numbers, intellectual property, slogans, color schemes, files, furnishings, supplies and equipment, and sometimes even staff.  It may also include a carefully defined method to deal with receivables, payables and other business liabilities.  When these issues are not properly hashed out as part of a mediated settlement agreement, problems can arise post-settlement, derailing what could otherwise be a peaceful divorce.  In such events, new litigation may arise concerning the parties’ intent and the meaning of the mediation settlement agreement.
From my experience, I advise my clients that it is critical to carefully consider – before participating in a mediation or filing a lawsuit – what they want to take away from the “break up,” beyond the cash in the bank accounts and other obvious assets.  Having the client’s “wish list” and “no deal” list before entering into any sort of mediation or litigation enables me to advocate more effectively for my client, paves the way for a smoother split, and helps prevent the protracted litigation the parties are trying to avoid.  Of course, a lawyer can never ensure that his or her client’s former business partner won’t purposely breach a carefully constructed mediated settlement agreement, but following these guidelines will help stack the cards in favor of the non-breaching client.