A cavalcade of horror stories reminds us of the importance of business succession planning and, importantly, planning for resolution of disputes among active business partners. Nowhere is this seen more demonstratively than in the case of a father and son investment management practice in Dallas.
In her excellent article in the July, 2013 issue of REP Magazine entitled “When a Family Team Falls Apart" author Megan Leonhardt spins the yarn in a tale of viciousness, treachery and betrayal in the aftermath of the breakup of a father and son family advisory practice in 2008. The son, Chris Wanken, sued his father for fraud and misrepresentation, accusing him of hacking into his bank account and even causing the death of Chris’ mother.
The case resulted in the proliferation of voluminous lawsuits, as well as a FINRA (securities industry self-regulatory organization) disciplinary and expungement action. Litigation went on for some five years at the state and federal level including fisticuffs in federal district court in Texas, Texas appeals court, the Texas Supreme Court, U.S. Court of Appeal for the 5^th Circuit and the U.S. Supreme Court (SCOTUS). Everything is bigger in Tejas, right? Wild flung claims included stalking, harassment, a groundless custody suit and threats of physical violence, all culminating in a wrongful death suit – something rarely encountered in partnership and corporate dissolutions.
In a somewhat understated concession, the article points out that father and son agree that a written partnership agreement would have prevented much of this maelstrom, let alone would have spared the litigants of legal fees in the high six-figures, and possibly the permanent destruction of family relations. At least they are in agreement about something! While the Alice in Wonderland scenario about which Leonhardt writes may be an outlier, wisdom can come in hyperbole. While family business break-ups are among the nastiest out there, owing to the added emotional and relational baggage, best practice dictates that business partners should never forego the written agreement.
While governance issues can be dealt with in a partnership or operating agreement or in corporate bylaws, the classic business succession agreement, such as the sort that the Wankens regret not having prepared is neither a time consuming, combative or costly proposition. Whether in the form of a redemption or cross-purchase agreement, skillful design and implementation is crucial, and must optimize the creation of liquidity, such as with the use of life insurance, and tax optimization. Attorneys with estate planning and corporate experience are best suited to advise clients on their rights, including separate counsel for the business entity and each of its respective owners.
The bottom line is that at the time of entity creation, agreements dealing with death, disability and dissolution should never be dispensed with. We have considerable experience in corporate consulting and planning for succession of business ownership. We invite you to call us should you have any questions.
The above information is provided for general information purposes only, and does not constitute legal advice. Successful implementation of the above-described techniques requires careful consideration of facts particular and unique to each situation and, therefore, should only be considered after a detailed consultation with an attorney. The above information is not intended to create an attorney-client relationship between the Law Offices of Daniel D. Kopman/Kopman Law and the reader. Such relationship would only arise, if at all, upon negotiation and execution of a written fee agreement.