The Hidden Dangers of Mixing Family and Business: Lessons from Costly Failures

You need help running the back office of your business. Your business partner suggests that his wife works for you. Or you need a sales representative, and he offers that his son takes the position. What could possibly go wrong?

There are, of course, many successful closely held businesses that have multiple family members working for them. But when problems arise, they are often not small problems. The very fabric of the successful partnership could be frayed when other family members are introduced into the picture.

Businesses have a dynamic to them that can sometimes be a delicate balance. You know your business partners’ faults, and he knows yours – and you both own up to them. But suppose your partner’s wife starts working for the company and does not do a proper job. Or his son couldn’t sell a thing. Now what? How do you get rid of them?

I have seen a very successful company be undermined by a spouse working in the office among the rest of the staff. Sales, accounting, A/R – none of them reported to this spouse directly, but they acted as if they all did. The entire office simply could not stand them, but the business partner had his head in the sand and refused to see any of the fast-growing problems.  The entire office was ready to stage a walk-out, which would have crippled the company. The conversation with his business partner was done without consultation with any attorney, and it could not have possibly gone any worse.

The partnership – their friendship – was irretrievably damaged, and after two years, protracted, costly business divorce litigation ensued. The partner whose spouse worked in the office – wrecking the company in the process – wound up selling his half to his partner, so neither he nor his spouse ended up working there. There were no winners – except, of course, the lawyers.

These businesspeople should have known better. There was no interview process. The spouse did not have the qualifications needed for the job. They knew there were other personalities in the office whose happiness mattered. And there was no pre-existing relationship between the spouse and the other partner to give anyone confidence that this would work. The partner who willingly accepted the non-qualified spouse into the company had reservations about whether the situation would work, but he didn’t want to have the difficult but necessary conversation with his partner expressing his concerns. By avoiding that conversation, he lost his business partner, had to spend the money to buy half of his own company, and spent hundreds of thousands on legal fees. That was a costly conversation to avoid.

Business partners must communicate with each other. If it is a difficult conversation to have, consult with an attorney experienced in business divorce litigation. Your attorney should be able to help you navigate difficult issues to avoid litigation, not just win when it happens.