Working With Your Partner’s Spouse

Starting a new business is always an exciting time.  When you are going into business with someone else, it’s a little bit like planning a wedding.  You’re both looking forward to a successful partnership that will be mutually beneficial.

But, also like marriage, not every partnership works out well.  Even if you don’t come to a disagreement, what happens when one of you unexpectedly dies?  Your partner’s interest in the business is an asset, and most people leave their assets to their surviving spouse.

So now, are you in business with your partner-in-law?  Is that something you’re comfortable with?

A large part of planning for a new business with a Menlo Park business lawyer is covering these sorts of contingencies.  Whether your business will be organized as a partnership, a corporation, an LLC, or otherwise, it’s advisable to have provisions in your agreements that allow for a controlled and fair resolution when the unexpected happens.

Every situation is unique, but here are a few tips for starting your thought process:

• Spouses of the partners should sign off on the business agreements.  This is especially important in California (or other community property states), to ensure that the spouse doesn’t have any control over the business—unless of course you want that.
• If your business involves a licensed profession, be sure you understand the rules for what a non-licensed spouse can and can’t do with their ownership interest.
• One way to resolve these sorts of situations is to have a buyout agreement in place.  But not all businesses (especially new ones!) can afford to pay cash for half the value of the business.  This is a situation where life insurance can be especially valuable.
• What about situations other than death?  What if one of the business owners just wants to leave (either to retire, or to pursue another business)?

These and other questions are just the beginning of the analysis, but planning out a business is a prime example of “an ounce of prevention is worth a pound of cure.”  Spending time up front thinking about these questions with a Menlo Park business lawyer can avoid many difficult, expensive, and time-consuming situations later.