Stay out of my business! My late spouse’s partner has taken over the business, what can I do?

That will depend on two major factors: (1) what type of legal entity is the business (i.e., partnership, corporation, limited liability company, etc.), and (2) how did your spouse hold title to the business interest?

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  • The type of business entity.

Business transactions between partners can be messy because they oftentimes are not well documented. A partner’s rights upon death depends largely on the partnership agreement, or corporate documents, that govern the business entity. If you have a properly created partnership agreement, it should have provisions on what is to happen when a partner dies. Does the partnership buy out that partner’s share of the business? How is the partnership share valued? What are the payment terms? It can be hard on a business to buy out a deceased partner’s share all at once so many partnership agreements alleviate this burden with payments over time instead of a lump-sum buy out.

The same result can be accomplished with a corporation or limited liability company by simply having the correct documents in place, either an LLC agreement or a shareholders’ agreement for a corporation. The buy out can be planned in advance with the help of an agreement.

However, if partners enter into a business without ever having a written partnership agreement, then the California Corporations Code applies to the business, but that code is not specific to your business. It provides generalized rules and you have to file a lawsuit in court to enforce those rules if the business partner refuses to cooperate.

Therefore, the first step in protecting an estate’s business interests is to determine whether there is a governing agreement. If so, you need to review that agreement and determine what rights you have. If not, then you probably will be filing a lawsuit in court to dissolve the business.

  • Holding title to business interests.

In order to take action against a business partner, you first must have legal authority to do so. If the business interest was held in a Trust, then the successor Trustee has the right to take action against the business partner. If the business interest was held in the decedent’s sole name, or there was no formal titling of the business (it was just two people working together), then you will have to open a probate estate so that the decedent’s personal representative (as appointed by the court) can take action.

Once you have the right person with the right authority, then you have to either demand payment as outlined in the partnership agreement (if there is one) or file a lawsuit in court demanding a dissolution of the business. There are complex laws governing partnerships and you can have a legal partnership between two or more parties without a written partnership agreement. Unfortunately, without a written agreement you have the burden of proving the partnership existed and the terms of the partnership. For example, was the partnership an equal 50/50 split of all profits, or did one partner have a bigger interest, say 60/40, or 70/30? What are the assets of the partnership? How mush is the deceased partner’s share worth? Is there money to buy out that share? It can be a tricky task getting to the bottom of these issues.

But the decedent’s estate does have rights. So if your husband’s business partner has taken over the business, then you can take action in court if you need to do so. What you receive from that action may by unknown, but you need to assert your rights. If nothing else, you should be able to reach a settlement with the business or business partner to receive something for the business interest.