Handling a Deceased Partner’s Spouse Without an Agreement

Answer:

As an experienced Delaware County Business Attorney, clients come to me all the time with questions about how to handle a deceased partner’s spouse without an agreement. The difficulty with the death of a partner from a business standpoint is that you’ve now lost one of the valuable assets of the company. You’ll have to consider addressing the loss from a couple of considerations. Consideration 1: “How do I either replace this person as an asset because they provide a certain value?” Consideration 2: “How do I replace their contribution to the business? Answering these questions requires you to address whether you’ve prepared for this event in your operation of the company in the past. DId the two of you enter into any buy/sell agreements, agreements that say what happens if you are going to dissolve by death or some other circumstance? You’re looking to see whether you’ve set forth in the corporate governance document a plan as to what should happen. The worst-case scenario is that you don’t have a plan, you didn’t set up any remedies for this situation, and you now have a new partner. This partner is the spouse, the son, or any other individual to whom your partner has left his ownership interest in this company. That is a difficult situation because now you are partners with a spouse who doesn’t know anything about the company, a son who may be too young and not know anything about the company, or a third party who you may or may not be able to get along with during the operation of your company. When this happens, there’s usually a provision that says if one of you passes away, you may have some life insurance that you’ve added to the value of the company. It may require you to buy out and pay your partner’s spouse insurance proceeds or there’s some provision that if one of you passes away, you’re going to pay it out on a certain amount so now the spouse of the deceased partner has a source of income that helps her out. If worse comes to worst, you don’t have paperwork in place for what happens upon the death of a partner, and the wife, son, or daughter shows up and says, “Hey, I’m your new partner,” you’re now looking at the exit process for dissolving that partnership. We address this in a different way, by establishing the value of the partner’s share of the business, negotiating an exit, and making arrangements for a payout. This educational blog was brought to you by experienced Business Lawyer Walter J. Timby. Our law firm proudly represents clients throughout Delaware County, as well as Pennsylvania, the greater Philadelphia area, Delaware and New Jersey. If you have any questions about handling a deceased partner’s spouse without an agreement, please contact our Delaware County Business Attorneys for a free case evaluation. Let our knowledge work for you.