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Disclaimer

This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.

 

Outline your divorce before you get married

Over the past week, I've met a number of entrepreneurs who are about to go into business together. There's always great energy at the beginning of a partnership. You feed off each other's enthusiasm, you can get things done quicker and you can come up with great ideas - because two heads are better than one.

However, I spoke to one entrepreneur who eloquently said: "You need to draw up your divorce papers before you even get married." She means that you need to outline what's going to happen if you eventually decide to part ways. The optimists out there will say that they're unlikely to part ways. Or, if they do, they'll find an amicable way to split the partnership.

On the other hand, the smart entrepreneurs out there know it's vital to:

  • sign a joint venture agreement that outlines the roles and responsibilities of each partner (think of this as a pre-nup that outlines the expectations of your marriage)
  • detail exactly what will happen if you decide to end the partnership (this is your divorce agreement)
  • determine an exit strategy that goes beyond how to divide assets but also outlines who owns your database and other intellectual property.

Physical assets are easier to dispose of or deal with. But when it comes to intellectual property or intangibles, who has the right to these things? Agree on this at the start and you'll avoid messy arguments later on.

This is a subject particularly close to me heart right now because I've just set up a partnership with someone. I must say, it's very exciting to create a new business from scratch - and it's great to work with someone who is eager to make the business work.

Your agreement may also include:

  • An anti-competitive clause. Can you both part ways and then open up shop in competition with each other?
  • Who gets to keep your suppliers and customers? In the same way as friends sometimes choose sides in a divorce, think about how you might divvy up your suppliers and customers?
  • A gag order. I must admit, this is something I had not considered myself. But I know of one entrepreneur who has just ended his partnership and has been gagged by his ex-partner's lawyers. He is unable to say anything about the partnership for fear of legal proceedings.
  • Details on involvement of family members. You may think you are going into business with one person or one company. But if the entity you are in partnership with has other directors (such as your partner's spouse), make sure you have a clear understanding of the legal implications of any related parties.

Planning your divorce agreement at the start may just be the key to a long, happy (and profitable) marriage.

Valerie Khoo, September 22, 2008
My Small Business, smh.com.au

 


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