Running a business is stressful enough to put a strain on any relationship. How many times have friends started a business together, only to end up as enemies battling each other in court, even if the business was successful? (Pink Floyd, anyone?) This is even more true if the business partners are family. Family members who go into business together are less likely to start with formal, written business agreements; therefore, the chances are greater that it will be one family member’s word against the other’s, and a judge will have to decide which one is more credible. If two of the partners are a married couple, and they divorce, things can get incredibly messy, both in family court and in business litigation. If you are involved in a dispute over a business in which the partners are members of the same family, contact an Alabama business litigation attorney.
The Great Pumpkin Patch Dispute
The partners in the Great Pumpkin Patch, a seasonal business that operated a autumn festival every year starting in 1992, were all relatives of a woman named Alice. Alice herself was not a partner, but her father Orvid, her brother William, and her husband Daryl were. They made a verbal agreement that each partner would own one third of the business. They also verbally agreed to do most of their business in cash and would intentionally underreport the company’s income to the IRS. At the end of each business day, Alice and Daryl would take the cash from that day’s transactions home and keep it in a safe in their house; the next morning, they would deposit some of the cash in the company’s bank account.
In 2005, Alice filed for divorce from Daryl, and the company removed him as a partner. The case went all the way to the Alabama Supreme Court before being remanded to a lower court. The parties disagreed not only about the valuation of the business but also about the terms of their unwritten agreement. Eventually, Daryl was able to get his fair share of money from his ex-in-laws and former business partners, but only after years of litigation.
Written Agreements Prevent Family Business Disputes
It might sound unthinkable to make a family member sign a legally binding agreement, but it is much better than ending up in a lengthy court battle with your parent or sibling. Likewise, married couples who operate family businesses together often end up in bitter disputes about how to divide their business interests when they divorce. Even if all family members hire the same lawyer to draft the agreement (so it isn’t you and your lawyer against your brother and his lawyer), it is important to set out the details in writing. Likewise, if you are already a partner in a business when you get married, a prenuptial agreement can protect you in a business dispute, even if you and your spouse stay together for the rest of your lives.
Let Us Help You Today
An Alabama business & corporate litigation attorney can help you resolve disputes with your business partners, even if they are family. Contact Cloud Willis & Ellis for help with your case.