3 reasons why business partnerships end in divorce

Much like marriage, no two, three or more business partners enter an arrangement expecting to "divorce" themselves from the deal shortly thereafter. However, life has a way of, well, getting in the way, whether due to a change in family circumstances, irreconcilable differences, conflicting views as to how the business should operate or circumstances beyond your control. Indeed, due to the effects of the novel coronavirus, a deadly disease that has taken the world by storm and upended economies, the resulting pandemic has dramatically impacted core business processes and shattered confidence levels.

According to the most recent data available from Gallup's Small Business Index Survey, optimism is operating at a score of approximately 60 on a scale of 0 to 200. While that's up rather sharply from April when it was 48, it remains well below its former perch in the closing months of 2019 (142). 

The pandemic has also led to disputes. Given that COVID has forced many companies to change how they operate, some may not be in step with what got certain partners to join or start the company in the first place.

Here are a few common reasons why partnerships can fall apart:

1. Fraud
Whether it comes in the form of embezzlement, money laundering, stealing from the company or misappropriation of funds, insider fraud is a very real thing and cannot be tolerated with the least degree of allowance. Understandably, it can lead to the dissolution of a partnership with the guilty parties involved in management or ownership. According to a study by researchers from Carnegie Mellon University, the typical manager who engages in fraud commits those crimes over a period of 33 months before they're caught. Their actions are primarily motivated by money and resolving personal financial issues.

2. Breach of contract
While contract law is complex, contracts themselves are fairly straightforward. Parties agree to the terms and conditions and do so by attaching their signatures. If a partner doesn't live up to their end of the bargain, a breach of contract may be grounds for partnership dissolution.

3. Mismanagement of debt or available assets
Year in and year out, finances are a leading reason as to why couples get divorced. Indeed, according to a recent study conducted by the National Center for Biotechnology Information and reported on by Insider, more than one-third of respondents cited financial issues as a contributing factor for ending a marriage.

While mismanagement of debt doesn't have to be a deal breaker for a partnership, it certainly can be, depending on what decisions were made and the circumstances of the situation.

Whether you operate a general limited or limited liability partnership, you need legal support to steer you through what can often be a complicated decoupling. If you're thinking about dissolving a partnership that exists or you're simply inquiring to see what your options are, Hudspeth Law Firm is here to help. Contact us today to learn more.

Categorised in: Dissolution & Partnership Disputes

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