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Partners Should Plan Ahead For Disability

Originally published: 02.01.12 by Mike Coyne

Agree to protect the business before misfortune strikes.

A short time ago, I received a call from a reader seeking some advice. He and his partner had operated a successful business for a number of years. One partner concentrated on the service side of the business while the other concentrated on new installations. However, the business began to unravel about 18 months ago. At that time, the partner in charge of installations was diagnosed with a serious cancer. The disease was extraordinarily debilitating, and the partner has never been able to return to work.

During the first few months of his partner's disability, the healthy partner stepped up his efforts on behalf of the business. However, several months of working seven days a week to handle both partners' responsibilities began to take a toll on the healthy partner's family life and his own health. Additionally, because the healthy partner did not understand the installation side of the business, the business began to lose revenue.

The partner who is ill has shown no willingness to step aside and leave the business. In fact, by trying to hold on to authority while he has been ill, he has actually

further damaged the business. The continuing decline of the business jeopardizes not only the healthy partner’s livelihood, but also the livelihoods of the business' 12 employees.

Unfortunately, there is no easy solution to this type of problem. We recommended to our reader that he engage his lawyer and accountant to mediate a resolution with his partner. In this case, it is probably necessary for the disabled partner to resign without an immediate buy-out in order to give the business a chance to survive. This won't be an easy discussion.

Dealing with a disabled partner is never an easy matter. Human nature is such that many of us would find it difficult to ask a disabled partner to step aside due to his or her disability. Yet, this is often the only solution.

The question is not how to have the discussion, but rather when to have the discussion. The best time to discuss a contingency plan for a major disability is when both partners are healthy. If you have a partner, you should have a discussion about how you would handle a serious disability, such as the one described in this article. Here are some ideas that might help you plan:

  • Have a written agreement that your compensation from the business will automatically terminate if you are unable to work on a full-time basis for X number of days within any six-month period. 
  • Purchase disability insurance. If you and your partner have disability insurance, you will have some assurance of an income stream in the event that you are unable to work.
  • Take the time now to learn each other's side of the business. Identify key employees who can assist you with the other side of the business in the event that your partner becomes disabled.
  • Have an agreement to sell your interest in the business to your partner if you become totally and permanently disabled.

Having a plan in place to deal with a partner's disability is good for the business, the healthy partner, and the disabled partner. Everyone benefits from the planning.

Michael P. Coyne is a founding partner of the law firm Waldheger Coyne, located in Cleveland, OH. For more information of the firm, visit: www.healthlaw.com or call 440.835.0600.

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