The four “D”s – divorce, death, disability, and debt – are realities of life that no small business likes to think about. However, planning for the bad as well as the good is a part of running a business. With a proper plan in place, a company will suffer much less disruption and uncertainty when the unthinkable happens.

Unexpected Small Business Consequences

One recent case demonstrates how something like divorce can result in unexpected financial consequences for a business. In Michigan, three partners in a small auto parts manufacturer were shocked to learn that the fourth partner’s impending divorce would result in his ex-wife owning part of their organization. Small businesses are particularly vulnerable to members’ interests becoming part of a divorce property dispute.

Unlike blue-chip stock, whoever owns the shares of a smaller organization has a direct impact on day-to-day operations and decision-making. In this Michigan case, the owners admittedly failed to plan for divorce and ended up having to borrow $250,000 to buy out the divorcing partner’s shares, which then resulted in a significant unplanned financial impact on their bottom line.

Consult a Business Attorney

Planning and consulting with a business attorney will ensure you have a plan in case of divorce, death, disability, or bankruptcy. One such plan can be restrictions on membership interest transfers right within the Operating Agreement. The business can exercise a right of first refusal, or it may automatically revoke the recipient’s voting or management rights until reinstated upon explicit request. Another way to address this is through a separate buy-sell agreement between the company and its members.

Whatever the plan, it is critical to have one for your company. Contact Fausone & Grysko, PLC for a consultation about your company’s Operating Agreement and to preserve and protect the members’ interests. Contact our office at (248) 380-0000 or visit us at www.FB-Firm.com.