Author: dr Andrzej Jakubiec - adwokat, mediator

Cooperation in business based on a partnership relationship can bring excellent results, but it can also lead to serious problems. One of them is the divorce of partners, which often results in a crisis in the company.

Divorce of partners is a difficult situation that introduces a lot of uncertainty and changes in the life of the company. Partners have to face many challenges, such as the division of assets, the separation of duties and maintaining financial liquidity. Each of these issues can affect the functioning of the company and, consequently, lead to its crisis.

The division of property is the first and often the biggest problem in the case of a divorce of partners. If the partners are unable to agree on this issue, serious financial difficulties may arise. The division of assets itself is a phenomenon broader than the management of the company itself, and even the issue of its ownership. However, it often happens that the company becomes the subject of blackmail in various ways, which is aimed at forcing the division of assets on certain terms.

An equally negative phenomenon is linking the issue of guilt in a divorce decree with company management, when the divorce process becomes a pretext for forcing property and business decisions. A completely separate and even more dramatic issue is making decisions regarding the company by one of the spouses dependent on the other spouse’s consent to shape the relationship with the children of the parties. In such a situation, children become hostages in a dispute over a company, or vice versa – it is the company that is the object and tool in a dispute over children. Each of these situations is destructive and demoralizing for both family and business relationships.

The separation of duties and responsibilities is no less challenging. Partners often share different tasks among themselves and have specific roles in the company. After parting, it is necessary to separate them, which can be difficult and time-consuming. In the absence of an agreement on this issue, the work of the company may be significantly disrupted, leading to a decrease in efficiency and results. It is worth considering even the temporal division of competences and responsibilities for the duration of the divorce and until the final division of property. In the end, it’s all about having something to share.

Another problem that may arise in connection with the divorce of partners is maintaining financial liquidity. During the breakup of a relationship, spouses often make serious financial decisions under the influence of emotions. Sometimes they try to compensate for their injustice with significant expenses, and sometimes they do it to show everyone around how easily they can handle all the fuss and how good they are. What is involved in such compulsive spending? It can cause serious problems with financial liquidity in the company, loss of trust of employees and contractors, and sometimes even bankruptcy. Of course, no one but the local jeweler or car dealer ultimately benefits from this.

An equally big problem is the lack of communication, arrangements, decision-making paralysis, undermining the spouse’s decision or ostentatious slander against employees or contractors. It doesn’t take much imagination to foresee the dire consequences for the company’s operations, but also for the atmosphere inside and around it, associated with such conduct.

Another cause of disputes may be a paradoxically different vision of how to resolve this dispute. The partners will have to decide whether to continue the business together and separate private from professional matters. If the partners decide to separate, how should it proceed?

You can sell the business and split the money. Another solution is for one of the spouses to buy back the shares of the other and thus leave one of them from the company. Physical division of the company is rarely practiced. It is also possible to transform the company in such a way that one of the spouses manages it and is physically involved in its work while the other spouse limits his share to the role of a capital partner who, having some share in the profit, is not involved in the company’s work.

Most of the hurdles that come with divorce can be overcome. Unfortunately, in many cases there are conflicts that lead to lengthy and costly lawsuits. Public conflicts can lead to a further loss of trust between partners and an escalation of destructive activities, as well as to a decrease in employee motivation and contractors’ trust.

Professional conflict management in the company is very important, which can be helped by an experienced lawyer specializing not only in economic and family law, but also knowing negotiation techniques. You have to act wisely, confidently and strive for an agreement. The best way is to resolve problems through negotiation, rather than allowing them to escalate uncontrollably.

Both interim agreements for the duration of negotiations or court proceedings, as well as the final agreement worked out with the participation of lawyers, should specify in detail all the rights and obligations of the parties and introduce the necessary safeguards for their implementation, so as to give both parties the feeling that their interests are secured and that their observance and the implementation of this agreement is beneficial for both of them and for the entire company.

Relationships between partners in family businesses are often filled with emotions and tensions, which increases the risk of conflicts between them. In my experience that these conflicts escalate over time because the partners often pretend that nothing is happening for years, and in the name of preserving family ties, they endure silently, viewing themselves as victims who sacrifice their own well-being for the greater good. By doing so, they automatically cast the other party as the one who exploits this sacrifice.

 Frustration that has been suppressed for years tends to erupt much more intensely than among partners who have a more distant relationship, working together based on factors beyond family ties and close emotional bonds. A family business can be likened to a ticking time bomb, with the entire family, employees, and contractors in close proximity. It is never known when it will explode and whether anyone will survive the explosion.

There are several distinct causes of conflicts among partners in family businesses.

The first cause of conflicts can be attributed to differences in approaches to managing the business. It often happens that parents want to run the company in a traditional way, while the younger generation prefers modern solutions. This can lead to conflicts regarding management and decision-making. It is important to realize that this is a manifestation of typical generational differences in perceiving reality, which are accelerated by the rapid pace of technological development and social changes. Given that both money and the future of the family are at stake, each party, driven by good intentions, becomes firmly entrenched in their position, creating the foundation for conflict.

 The second cause of conflicts in family businesses is the difficulty of separating personal life from the business. Family issues often spill over into the company, leading to situations where emotions dictate business decisions. This can lead to conflicts related to power distribution and influence within the business. Conversely, conflicts within the business can also spill over into the “home,” and in such cases, we can be certain that it will return to the company with doubled intensity.

The third cause of conflicts in family businesses is the lack of a succession plan. Often, parents or grandparents may be reluctant to relinquish control of the company, while the younger generation wants to take the reins. This can lead to a situation where there is no clear succession plan, which in turn can result in conflicts and misunderstandings. Additionally, the failure to address these matters in a will and leaving them subject to general inheritance laws can lead to fierce conflicts among heirs, where the object of contention is not just the wealth but the power within the company after the passing of the “senior.” If the deceased has also left a spouse behind, it is easy to imagine the challenging dispute that may arise.

 Another source of friction is the lack of clear division of responsibilities and tasks. In many family businesses, all partners tend to be involved in every aspect, which leads to a situation where no one feels accountable for specific duties. This can result in conflicts related to decision-making and a lack of coordination. Mutual grievances and complaints will find countless opportunities to sour the atmosphere, ultimately leading to a serious conflict between partners.

Lastly, a significant cause of disputes arises from the absence of clear rules regarding profit distribution. It is often the case that in family businesses, the partners do not have a clearly defined distribution of jointly earned profits, which leads to a situation in which one party feels aggrieved. This can lead to conflicts over the distribution of power and influence over companies. This becomes particularly evident when the ‘younger generation’ works for modest compensation, while the older generation accumulates profits within the company, considering that they are no longer driven by financial gain. After all, they have already acquired everything they need.

Conflicts between partners in family businesses can have a negative very impact on the operation of the company and the relationship between business partners. Therefore, it is advisable to seek the help of a lawyer specializing in business and family law, who can help solve problems and prevent the escalation of conflict. A business is built with difficulty and for years. It can be destroyed very easily. On the other hand, nothing justifies living in constant frustration or exploiting economic advantage in family relationships. Any case of this kind requires detailed work with an experienced lawyer who will look at the client and his case as a whole, taking into account the emotional, family, financial and at the very end, of course, legal aspects.

We negotiate not only with external contractors, but also with our partners and others “inside” the company. Where there are close relationships, naturally disputes and conflicts occur. In case of disputes between partners, negotiations are particularly important, because the resulting agreement
can have a decisive impact on the company’s future.

On the other hand, It’s absence can cause serious trouble with decision-making deadlock and
even business collapse. Preparation for negotiations is crucial to achieving positive results. Below I present some basic strategies and tools that can help you prepare for negotiations.
Preparing for negotiations

Before starting negotiations, it is important to thoroughly research the situation. The basis is to analyze the company’s articles of association, the content of the resolutions passed, the investment agreement and – of course – the applicable legal regulations.

In case of disputes between shareholders, it is necessary to carefully analyze the causes of the dispute, try to discover the interests of the parties, that are deeply “underneath” the positions presented by them.

It is good to find out what the financial and personal of the accomplice, since often events in these areas – seemingly unrelated to the company’s operations – have a direct influence their business actions.
Trying to find answers at the source of a partner’s attitude can fundamentally change our approach to the presented by him superficial behavior and lead to the following. Instead of haggling, we try to resolve the situation together, which is, after all, difficult for all parties.

Example: It is worth finding out if a partner wants to sell his shares because he plans to tie up with a competitor, or because he needs money for his child’s treatment. Or perhaps he is already tired of working and wants to retire from business? Or maybe the reason is yet another – imagine that he has learned something that, in his opinion, makes the company’s situation very difficult and
simply wants to “escape” from it?

Depending on what need of the shareholder is to be satisfied by the sale of shares, our optimal reaction for us (and for him as well) may be completely different. Despite the fact that this is a share sale, we are dealing with extremely different personal and business arrangements, so different should be the steps towards solving a common problem.

As part of the preparation for negotiations, always take the time to Identify BATNA (Best Alternative to The Negotiated Agreement) and WATNA (Worst Alternative to The Negotiated Agreement), that is best and worst alternatives to the negotiated agreement.

So you have to compare what will happen if you we find an agreement with a partner and what can happen, if we don’t reach it. Then we will be able to assess whether there is any point in seeking an agreement at all, and we will set ourselves it’s lower limit. Of course, it is essential to take into account also the probability of the alternatives coming to fruition.
Determine your goals
Before negotiating, it is also important to define your goals and limits. You need to know what you want to achieve and how far you can go. Setting goals will enable you to focus on
the most important issues and avoid unnecessary compromises. In doing so, it is worth remaining flexible, as the information we obtain during the negotiations may affect the validity of earlier assumptions.
Develop an action plan

Planning is key to achieving positive results.
Developing an action plan will make it possible to determine what steps need to be
be taken to achieve the goals. The plan should include such elements such as a timeline of activities, interlocutors, budget and how to conduct the negotiations. It is also necessary to determine,
what tools of direct and indirect influence we have towards the partner. Conversely, how he can influence our decisions. Also in non-obvious ways. As part of developing a plan, you can also consider alternative options, such as changing the organizational structure, changing the articles of association of the company or changing the proportion of shares. It is important that the plan be
realistic and takes into account both goals and boundaries that should not
should be exceeded during negotiations.

It is necessary to listen

An important tool in negotiations is also the ability to listening and the ability to empathize. The partners should listen their arguments and try to understand the other’s point of view. In this way, they will have a better chance of reaching agreement that will be satisfactory to both parties.

Summary

Negotiations between partners are an integral part o of running a company. Preparing for negotiations and having strategy and tools will allow you to achieve much better results than actions that are ill-considered and chaotic, subject to emotions or aimed only at demonstrating one’s inflexibility and willpower. It is important to conduct negotiations in a professional, constructive and empathetic, taking into account both your goals and those of your negotiating partner.

Partners do not always agree on how to run a business. It is natural that there are differences of opinion regarding strategic decisions, profit sharing or the role of individual partners. So the key is not whether there will be friction, but how we deal with it. Will we manage them skillfully, or will we allow them to escalate into a conflict that will weaken or destroy the common business or lead to permanent harm to one of the partners?

What to do when a dispute arises? Of course, the “hard” solutions in the Code are the last resort. Involving the court in resolving an internal conflict is ineffective because it takes a lot of time, energy and costs, and the effect is distant and uncertain. There is also no doubt that a court dispute most often leads to an escalation of tension, because the role of the court is not to find a solution that is satisfactory to the parties, but to decide who is right, most often on a zero-one basis. Most likely, it will also be associated with image losses. Court proceedings will also be a source of new tensions and conflicts.

What can be done then? The answer to this question is so simple that it is often rejected automatically by both businessmen and their lawyers. Well, we have to talk. Conversation – negotiations – is not a show of weakness, but of courage, maturity and responsibility. It also shows our openness to the interests of the other party, which may result in reciprocity. Finally, it makes it possible to attempt a joint effort to solve a common problem instead of a confrontational and antagonistic attitude. Negotiations can be tough and effective at the same time, but they always allow the parties to express themselves and present their actual interests, which are usually hidden much deeper than the demands and positions they originally presented.

What’s more, it is through negotiation that an agreement worked out jointly by the parties can be reached. Unlike an “imposed” court verdict, which always involves “wronging” one of the parties (if only subjectively), negotiations allow to solve the problem together, which gives each party the conviction that the final agreement is the result of their work, they feel a bond with it and share responsibility not only for its creation, but also for its implementation. At the same time, we avoid revanchist attitudes that are so natural for the effects of court proceedings. So instead of a desire for revenge, there is a willingness to continue doing business or part ways without wanting to harm the other party.

Negotiations, however, are quite an art. And contrary to popular opinion, they do not rely on haggling at all. In order to negotiate effectively, it is worth using the help of a lawyer who will professionally and comprehensively help us prepare for the meeting and offer support during the talks or conduct them himself.

Step 1: Prepare for negotiations

Preparation is most important. It is estimated that at least half of the lawyer’s time involved in denials is preparation. A lawyer can help us gather information about the other party, present the strengths and weaknesses of his client’s position, help in developing a negotiation strategy, taking into account his interests and possible scenarios. It is necessary to define what goals we want to achieve before starting negotiations.

Step 2: Find the common points

During negotiations, it is worth focusing on finding common ground. Let’s look for solutions that satisfy both sides. It is also a good idea to rely on arguments based on facts and figures to convince our partners of our position.

Step 3: Seek a compromise

If negotiations do not go our way, it is worth seeking a compromise. It is important that we do not give way on all issues, but also do not insist on our own. Let’s remember that negotiation is a process of exchange and looking for asymmetries in it.

Step 4: Make sure you communicate

Communication is key in negotiations between partners. It is worth listening carefully to partners and paying attention to their position. If something is unclear to us, it is worth asking for clarification. It is also important to remember the tone of voice and body language that can affect the reception of our words.

Step 5: Seek the help of a lawyer during the negotiations

A lawyer can play an important role during negotiations between partners. He can help us clarify legal issues, suggest what issues to raise during the talks and propose compromise solutions. It is worth remembering that a law firm should not impose its position, but only help to achieve the goal. However, its assistance in defining it is invaluable.

Summary

Effective negotiations between partners can be difficult, but crucial in reaching a compromise and avoiding conflict. To prepare for negotiations, it is advisable to enlist the help of a lawyer to help develop a negotiation strategy. During the talks, it is important to look for common ground, communicate, seek compromise and, very importantly, listen carefully to the partners. During the negotiations themselves, the lawyer can limit himself to a support role, or play a more active role, or even lead them. With good preparation and professional conduct of negotiations, it is possible to solve common problems underlying and underlying the conflict and give both parties a sense of responsibility for the implementation of the agreement, in the development of which white participation.

Involving the court in resolving an internal conflict is always a last resort. The Chinese say that the sound of arms is a failure of diplomacy. You can borrow this wisdom and say that a court case between partners is a failure of their communication and cooperation. Who benefits from it? Certainly not a common business.

A case in court is always expensive, requires a lot of time and energy, and the end result is uncertain. The court can only arbitrarily decide who is right in its opinion. Will this judgment be fair? Will this verdict be right? Will this verdict serve to resolve the deep-seated causes of the conflict? Let us remember that the trial itself is only the tip of the iceberg, and the true reasons and motivations lie much deeper, and the court has no access to them. It is also worth remembering that a court settlement of a conflict may also have a negative impact on the company’s image and be the cause of further tensions and conflicts.