When Death Complicates Business Divorce

Most people starting a new business understand that they and their business partner(s) need something in writing that spells out the agreement between them. But all too often this step is ignored. Everything is going great! We’re busy starting a business! We’ll get around to it…

…And then you don’t.

…And then your business partner dies unexpectedly.

…And you are now in business with their wife (or husband) – someone you never wanted to be in business with in a million years.

You might be able to amicably reach a buyout arrangement. If you had the foresight to buy life insurance to fund this buyout, you probably had a written agreement in place. But if you can’t reach a negotiated agreement, you may have the same questions that countless other clients have had before you: Can’t I just get out of our deal? Can’t we get a “business divorce?”

Unfortunately, as with too many things in the law, the answer is… maybe… it depends.

There really is no such thing as a “no fault” business divorce – at least under New Jersey law.  Simply stating that you don’t want to be in business with this person will likely not cut it in court. In fact, it is possible that the spouse may wind up having a claim against you. You may have had arrangements with your partner that their spouse knew nothing about, does not like, and does not consent to.

For example, if you have family members on the payroll – maybe your partner was ok with this. But what if their widow isn’t, and had no idea? Or your compensation – your partner might have agreed to you getting substantially more money, but a spouse who knows nothing about, and does not fully understand, the business may not appreciate why you should be getting so much compensation. What if you now have to hire an employee to replace what your partner was doing while he was alive, cutting into (or eliminating) what the spouse is now receiving. That often does not go over so well.

Ideally, of course, your shareholders’ agreement or operating agreement would deal with these issues – such as creating an automatic buyout right upon death of an owner. But if you were one of the many not foresighted enough to have any such agreement, you still may have options available to you. If the spouse owns a minority percentage, you need to strategize to ensure you do nothing to put yourself in the crosshairs of a minority shareholder oppression suit.

If you are 50/50 owners, it is possible to argue before a court that the company is in deadlock and cannot operate with the disfunction. Either way, you need to consult a business divorce attorney to see what, if any, rights you may have. Please do not hesitate to reach out to me at dcroberts@norris-law.com.

About the Author – Business Divorce in NJ

David C. Roberts, Chair of the firm, specializes in complex commercial litigation, including fraud, trade secrets, and restrictive covenants, with a focus on business partnership and shareholder disputes in New Jersey. Known as business divorce litigation, these disputes often involve shareholder and LLC member oppression, embezzlement, owner freeze-outs, dissenter’s rights, and efforts to dissociate or expel an owner. Dave strives to resolve matters through mediation but is a seasoned trial attorney when needed. He frequently writes and lectures on minority shareholder disputes. With extensive experience representing both minority shareholders seeking buyouts and majority owners defending against such claims, Dave offers unique insight into the strategies and challenges of business disputes, particularly in family-owned companies.