Divorcing Your Business Partner

By Chrissie A. Powers, CPA/CFF, CFE, CVA

Justin shows up to work on Monday morning only to find out that his business partner, Alice has changed the locks and she wants him out of the company. When the two started the business, they never dreamed the relationship would crumble, thus nothing was documented as to how the business relationship was to be terminated. Justin and Alice, who at this point cannot agree, now find themselves in the mists of a long drawn out legal battle and this is where a forensic accountant comes into play. We have been retained in numerous cases where partnership/shareholder agreements, which are important documents in case business relationships deteriorate and the business owners must go through a divorce, are nonexistent.

When there is animosity between partners/shareholders, a forensic accountant is often necessary to sort out the details of their company. We are frequently called on by legal counsel to provide an independent analysis of the business or ownership interest. We document what the accounting records support and resolve who contributed what, how the money generated by the business venture was accounted for, and what, if anything, was inconsistent with each partner’s rendition that caused hostility between or among the partners/shareholders.

In a partnership/shareholder dispute, it is often necessary to perform a detailed analysis of accounting records for multiply years to quantify the issues in question. We are able to identify, trace and quantify the compensation, benefits and/or distributions received by each of the disputing partners/shareholders. This is generally done by analyzing the financial statements and company tax returns, reviewing the general ledger for personal and other discretionary expenses, examining check registers, W-2s, bank and credit card statements, detailed fixed asset listings and depreciation schedules. When necessary, we can provide a valuation of the business as a whole or on an individual ownership level.

If the partners/shareholders determine it is time to terminate the relationship in its entirety, we are able to examine any employment agreements, shareholder agreements, and/or buy sell agreements in existence. It is not uncommon for one partner or shareholder to buy the other one out. The buyout options may include payments over time or a lump sum buyout. Another scenario would be to sell the company and share in the profits from the sale.

If you have additional questions or concerns regarding accounting for partnership/shareholder disputes, don’t hesitate to contact us at 614.722.7914.

Chrissie A. Powers, CPA/CFF, CFE, CVA

Chrissie A. Powers,
CPA/CFF, CFE, CVA

Managing Member
P.D. Eye Forensics, LLC