The 6 Deadly D’s of Business Partnerships

When starting a new business, people tend to join forces with trusted friends and family members. Don’t skip the partnership agreement because you trust your partners. Instead, draft a careful agreement that spells out what will happen in the event that you encounter one of the six deadly D’s of partnerships.

Divorce

Unless other arrangements exist, it’s the court who decides how marital assets get split during a divorce. This means that after your business partner gets divorced, you may find yourself in business with their ex, whether you want to be or not. Opportunity Knocks explains, “exes of business partners can be entitled to a share or portion of the business. This could be up to half. In many instances they will take a buyout, but that could sink an already struggling business.” It’s important to protect the business from this possibility.

If the business partnership happened before the marriage, require your business partners to get a prenup agreement that protects the business. If partners are already married, draft the partnership agreement in a way that requires spouses to sell back any shares of the business they are awarded during a divorce.

Default

If a business partner goes into debt, the bill collectors may have the legal right to seize their assets, including their portion of the business assets. When creating your company, consult with an attorney and choose a limited liability or corporate business structure to protect the business assets from individual creditors.

Drug Use

When establishing a partnership, remember that addiction is a disease that doesn’t discriminate. Anyone can find themselves battling an addiction, including you and your business partners. According to The Recovery Village, “it’s important to create boundaries, financial and personal, that protect you, your family, and others who may be negatively affected by an addict’s behavior.” Boundaries also help you avoid enabling your partner.

You should try, of course, to maintain compassion for your addicted friend. Stage an intervention and do your best to get your business partner the help he or she needs. Help the business as well. Add provisions to your partnership agreement detailing steps business partners can take to prevent the addicted partner from hurting the company.

Disinterest

Perhaps a once gung-ho business partner has found a new passion or must now devote themselves to caring full-time for an aging parent. Whatever the reason, one of your business partners may opt to leave the partnership at some point. Make sure your partnership agreement provides clear provisions for doing so.

Disability

Sometimes a business partner suffers an injury or disability that forces them to leave the partnership. Provide an exit strategy so that a partner can leave if they must.

Your partnership agreement should also detail when a disability can trigger a buyout. You’ll want to outline a strategy that lets a disabled business partner leave voluntarily and agree to the terms under which you can force a disabled partner out if necessary. Northwestern Mutual explains, “A disability overhead expense policy is designed to reimburse the business for certain operating expenses if the owner becomes totally or partially disabled. It’s a conversation that no one wants to have, but it’s an essential one for the long term success of a business.”  Business partners often carry disability insurance on each other so that one can afford to buy the other out if the need arises.

Death

It’s important to outline what happens when a partner dies. How you handle a death is up to you and your partners, but make sure you agree on what you will do before it becomes necessary. According to Collateral Benefits Group, “many times partners will invest in a policy where partners carry life insurance on each other so that a buyout is possible in the event of a death. That way in the event of an untimely death, the family of the person who passed isn’t burdened by a company they don’t know how to run, and the business can stay afloat with a sole leader.”

This six deadly D’s all affect business partnerships and can do so quite suddenly and unexpectedly. The best defense is to have a plan in place that takes all these possible contingencies into account.

There are many tools and resources out there for your business success. Take some time researching those on this list to help you be better prepared for business!