Partnerships...NOT!

Date: April 13, 2006

I spend all of my time dealing with people who are concerned about Asset Protection. Many are in a jam.

Many times, the jam is of their own making.

It is important to analyze where the risks (attacks) come from. Most often the attacks come from family and friends. Normally, the attacks are from people you have known for years.

I tell my clients that their most likely opponent is a family member (often a spouse), and then a partner. After this, and only after friends and family are exhausted, it is the unknown third party slip-and-fall plaintiff.

What I want to briefly analyze today is the primary attackers. It surprises many that the worst attacks come from spouses and children. After them, it’s business partners.

WHY DO BUSINESS PARTNERS ATTACK:

SIMPLE: They feel like that they deserve more.

WHY PARTNERS SHOULD BE AVOIDED (OR CHOSEN ONLY IF GOD FORCES YOU TO DO THIS!):

SIMPLE AGAIN.

It’s the DUTY.

Did you realize that you have a greater duty to your business partner than to yourself? It's called a fiduciary duty…just to make it confusing and more difficult to understand.

In the case of a business partner, you owe him a FIDUCIARY duty. If you do anything that makes you money without disclosing it to him first and offering him a chance to participate, there is a HUGE probability that he is going to sue you. It is called the Corporate Opportunity Doctrine.

If you owe somebody a fiduciary duty and don’t fulfill it, then you can be forced to make good.

Normally, when you choose a partner, you do so because you think that they can make you money. Few people realize that when taking a partner they also possibly (and probably) have a duty to offer to them first dibs on any other business opportunities that are even tangentially related to the partnership? The really bad part is that there are few hard and fast rules on this. Sometimes a solid partnership agreement (operating agreement in the case of an LLC) will deal with this; sometimes not.

The reason I write this is to alert each and every reader to an endemic problem. There is no such thing as a good partner. Yes, they are important, because they add additional capacities; however, they also create fiduciary duties. A good partner who is not also a great person is normally not worth the time or risk.

It is my advice that you avoid partners like the plague. I also tell my clients the same thing when it comes to marriage. DO NOT get married unless you feel compelled and that there is no other alternative (meaning that you LOVE your future spouse). A partnership is no different than a marriage except that the judicial remedies are often more draconian. Only take partners or a spouse when you are compelled by some gut reaction that forces you to go against the solid advice in this newsletter.

With this said, I am both married and have a partner. Perhaps stupid but, I know my risks, and I am protected. I also have been lucky on both. Partners and spouses are just like that little girl with the little curl who is either “very, very good” or “horrid.”

Don’t go into either with your eyes shut. A simple handshake is nothing but a recipe for destruction. Listen to me and follow my advice. NEVER ever get married or go into a partnership without formalizing your exit strategy (unless you are so dirt poor that it doesn't matter).

With this said, I wish you a happy and protected week…and nothing but one spouse and partners as good as the girl with the curl.

ABOUT THIS EDITOR:

Rob Lambert, Founder and former law professor is considered to be foremost expert on tax compliant asset protection structures. A contributing editor to Lexus Nexus debtor creditors series of law books Rob's passion is implement client wealth plans that stand the test of time and hold up under duress.

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