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Courts are seeing a proliferation of disputes between owners of closely held companies. While these relationships often begin healthily, fueled by optimism and financial success, perspectives can begin to diverge as a company matures. In these scenarios, business relationships can quickly deteriorate to the point where litigation and a ‘divorce’ is necessary.

Just as a personal divorce can be a messy affair, so is a business divorce. Ultimately, it can result in anything from a buyout of one owner’s business to a complete dissolution of the company. Even when owners decide to stay together, they typically have to amend their agreements to more clearly define their ownership rights and responsibilities.

Although relationships between owners can break down for a variety of reasons, here are the five most common causes and how they can be resolved:

1. Owners Grow Apart: Successful business relationships require mutual trust, commitment, communication, and teamwork, along with an ability to resolve conflicts constructively. When there is a breakdown in any of these components, friction may arise, and the only option may be a business divorce.
2. Deadlock: Deadlock is most common when there are two owners that have equal stakes in their company but have disagreements on issues so critical to the business that they prevent effective orderly operations. In this case, complete dissolution may be the only option.
3. Compensation Disagreements: In cases where one owner has begun ‘slacking’ on their responsibilities, disputes are prone to arise over whether they should receive the same compensation or distribution of profits. When this occurs, a divorce might not be necessary, but the remaining owners will likely have to renegotiate their compensation agreements.
4. Financial Misconduct by an Owner: Unfortunately, all too often, relationships break down because one or more owners have taken unauthorized distributions or otherwise misappropriated company assets. This level of misconduct makes it nearly impossible for operations to continue as normal and almost always leads to litigation.
5. Bringing in New Family Members: While it may feel natural to bring a trusted family member into the company, they may not be equipped to perform the tasks they are responsible for. As they’re often compensated at a higher rate than they should be, it can lead to frustration and accusations of favoritism, which can undermine authority and minimize meritocracy. When this happens, it may be necessary to ultimately remove the family member from the operating business.

Business divorces are often emotionally charged, high-stakes matters that demand significant time and resources. However, with proper preparation and execution, they can be resolved in a way that satisfies all parties involved