Family Business Disputes

family business disputes
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“All happy families resemble each other, but that each unhappy family is unhappy in its own way.” – Leo Tolstoy, “Anna Karenina”

In my 20-plus years as a business litigator and trial attorney, I have handled many complex and hotly contested business disputes. As a family law attorney, I have helped clients through emotionally- charged proceedings in divorce and time-sharing cases. Sometimes, these worlds collide in the form of family business disputes, which can present not only complex issues but sometimes, ugly and destructive behavior.

The list of famous family business disputes includes the Market Basket supermarket chain (the Demoulas family), the Koch Brothers and Koch Industries, the Rollins Brothers and RPC, and National Amusements (Sumner Redstone and daughter). Locally and throughout Florida, we have seen our share of hotly contested family business disputes as well, a few of which I’ve represented clients in. Many of these cases have involved decades of family hostilities, salacious allegations and fisticuffs in depositions and in the courthouse.

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Family businesses in general are extremely important to our economy – the majority of all businesses are family owned and they employ roughly half of our national workforce. On a micro level, these enterprises offer not only income but can form the foundation of family pride and legacy. So, avoiding family business disputes – and resolving them quickly should they arise – should be in the best interests of all parties.

Proper Planning and Documentation

As with any business, interests are best protected by having proper documentation in place. In a family business, the risk of protracted disputes may by significantly reduced through proper contractual planning in the form of a detailed partnership, LLC or shareholder agreement. Furthermore, because family dynamics and events can impact the business, other documentation may be necessary to protect the interests of the business as well as family members. For example, it may be wise to consult with an estate planning attorney so that business interests will properly pass to intended beneficiaries.

Additionally, should any owners of a portion of a family business intend to marry, a prenuptial agreement governing that family member’s interest in the business. This is because, even if the family member’s business interest existed prior to the marriage (and could thus likely be successfully argued to be a pre-marital asset), any increase in the value of the business during the course of the marriage could be considered a marital asset and thus, under Florida law, subject to equitable distribution in the event of a divorce.

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Family Conflicts

Family businesses are, at their core, extensions of family relationships. Thus, the operations of the business and the family dynamic will very likely have significant overlap.

Unfortunately, the business-family “overlap” does not always equate to an alignment in values, objectives and business judgment. This is often seen in circumstances where children of a successful business owner inherit the business interests and the children have differing views on how the business should be operated. Sometimes, even in situations with clearly defined succession plans in place, the friction can create discord and litigation between the surviving family members.

Family conflicts can also arise in the context of social or familial roles. For example, “mom” or “brother” may have that role within the family unit. However, in the business, the other family members may report to “mom” or “brother.” If all participants do not properly engage in role separation – which is understandably challenging – significant conflict can arise. This is because while our rational minds understand that the family business’s goal is to maximize its economic return, the separation between family identity and workplace roles can be a struggle for many to navigate. In other words, people have certain expectations of family members that may not be compatible with interests essential to the family’s business.

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Some Practical Thoughts Should Family Business Litigation Erupt

Obviously, a litigator’s first role in the event of litigation is to properly protect the client’s interests. Examination and analysis of all pertinent business agreements must be conducted.

However, certain practical approaches should not be overlooked. First, the business litigator should undertake an objective assessment of the reasons underlying the family law dispute. All too often what are initially presented as legitimate business concerns are issues having their roots in family events that transpired years or even generations before and understanding the origin of the dispute may go a long way toward a workable solution.

Second, consider an early mediation or settlement conference. My experience has taught me that while an early settlement conference may not resolve all of the issues in a highly emotional case, it may provide each party with an opportunity to narrow issues or, at minimum, understand better the reasons underlying the other party’s positions. In addition, in these types of cases, the business litigator may consider a mediator with experience in family law matters – many family law mediators have an excellent understanding of business valuation and often more importantly, are very adept at diffusing the emotional tensions the parties bring to the table.

Conclusion

This article is intended to provide only a brief overview on the topic of family business disputes. Clearly, good planning at the outset can help minimize the risks associated with a family business. However, the potential sources of conflict that can disrupt a family business are myriad and can present serious challenges to a business litigator confronted with a family business dispute. Michael L. Duncan, Esq.

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