What to Do When Your Partner Dies and Leaves His or Her Share to a Spouse
It is not uncommon for a businessperson in a partnership to leave his or her share of a company to a spouse in his or her will. However, issues may arise upon the death of that partner, especially when the recipient spouse is unwilling or unable to take over the responsibilities that the share requires. This is especially true in instances in which a written agreement does not exist.
If you are in a partnership and your partner recently passed away, you may be worried about the future of your company. The Fort Lauderdale business litigation lawyers at the office of Edward J. Jennings, P.A., are prepared to help you deal with this major life event and move on from it in the most effective way possible.
When There is No Partnership Agreement
If your partnership was solidified with a handshake and a “Cheers”—meaning, there are no official documents proving that a partnership actually existed—the partnership dissolves upon the death of your partner. This does not mean that you do not have a business. Rather, it simply means that your old partnership as a legal entity is no more. If you want to continue business as usual, you would need to sell off assets of your former partnership and use the proceeds to pay off creditors, vendors, and anyone else you owe money to. You would also need to distribute the funds evenly to any other partners and the spouse of the deceased, who was named beneficiary in the will. If the will is in probate, you would need to distribute the funds to the deceased party’s estate for distribution.
Operating without an agreement is risky for several reasons. One such risk develops after a partner passes away. In addition to the partnership dissolving, the partner’s spouse could want his or her money immediately. Most businesses are not in the habit of keeping partners’ capital in a bank account. Instead, they invest in assets, which must be sold in order to come up with each partner’s share of wealth. If the spouse becomes impatient, he or she could sue for speedy recovery, which puts you at a risk of losing more than what is fair.
When There is a Partnership Agreement
When a partnership agreement does exist, it generally overrides Florida’s laws on the matter. A sound partnership agreement should contain clauses on what should be done in the event of a partner’s death. The contract should specifically address what is to become of a deceased partner’s interests and whether or not an heir can sell those interests to someone else. The covenant should also contain instructions on how to pay out the deceased party’s wealth, how to pay out his or her share, and how to remove his or her name from all partnership documents and agreements.
Agreements pose their own unique risks as well. In addition to the surviving partners being subject to a speedy payment lawsuit, they also run the risk of the deceased partner’s spouse stepping into the now empty partner position. If your agreement has a continuity provision but no language to prevent such a situation, there is nothing that you can do to prevent that from happening. If the spouse has the same business savvy as your partner, you may be fine, but if he or she has no business sense, his or her involvement could pose a serious threat to your company.
Prevent Risks With a Sound Partnership Agreement
Though there is not much you can do if a partner has recently passed and you either did not have an agreement or did not have a provision in your agreement regarding what to do in the event of a death, you can prevent death-related issues by working with a Fort Lauderdale business litigation lawyer from the moment you decide to go into business with another individual. Whatever your situation may be, reach out to the team at the office of Edward J. Jennings, P.A., to discuss your legal options today.