What if there was a product on the market that allowed you to insure your company in case of a partnership breakup? What if you could go to your local insurance company, pay a premium every year, and know that your value and wealth was protected if you and your partners were to go in different directions?
It would seem like a good idea to have this insurance, right? I mean, we all really know deep down there’s a chance that partners will disagree. It’s rare for two people to go for any extended period of time without getting into a disagreement. With so many marriages ending in disagreement and divorce, we could only imagine what percentage of partnerships end up in disagreement and separation. My guess has long been that it’s probably a higher percent of partnerships that end up in business divorces than marriages end up in divorces.
It’s much easier to walk away from a business partnership, and business partnerships are expected to end at some point, whereas marriages, theoretically, should last a lifetime.
It would be such a great idea to be able to have this insurance and so many people would get it. So, why doesn’t it exist on the market?
Well, I think there are a few reasons.
First, it would be hard for the insurance companies to assess the risk of disagreement. Which partnerships are going to disagree and which won’t? I think insurers would tell you it would be hard for them to tell because it’s so uncertain. Just like me, as an attorney, I have a hard time assessing which partnerships are going to disagree and which won’t. Everybody thinks they’re going to agree, but some percentage of them do end up in disagreements.
Second, the insurance companies would have a hard time setting premiums on this because, unfortunately, partnership disagreements are just all too common. They happen regularly. It would be like getting insurance for getting the roof on your house replaced as part of periodic maintenance. We all know we’re going to have to replace our roof at some point. An insurance company wouldn’t take that risk. Of course, I know insurance companies do cover this loss in the event of a storm or other catastrophic event – but those can be predicted with probability tables.
What do we do if this insurance product doesn’t exist? If we can’t run out to our insurance company and get disagreement insurance?
The key is careful planning within your partnership documents. We’ve talked in prior blogs about what to consider in partnership documents to deal with the possibility of disagreement, and we want to be thinking in those terms. We want to know that disagreement is possible. We want to be realistic, and we want to put plans in place. One of the key things you want to do is make sure that you have a path forward in the event of a disagreement and that the value is protected.
I tell my legal clients (www.mcbrideattorneys.com), “I would rather have partners walk away with a check that they’re unhappy with than walk away after a litigation with zero left from the company.” It’s really smart planning to understand that a disagreement is possible and to have a mechanism to end that disagreement and keep the wealth of the business before a disagreement.
What’s been your experience with disagreement planning? Would you buy ‘partnership split up’ insurance if it was available? What are your thoughts on this potential product? Join us in the comments below and let us know.
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This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. Freeimages.com/photographer mailsparky.
About the Author
R. Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment (www.rshawnmcbridelive.com/3laws), gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can reach R. Shawn McBride at firstname.lastname@example.org or (214) 418-0258.
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