When a Partner Divorces: How a Personal Crisis Can Affect the Law Firm

Any major life crisis for a lawyer can affect their law firm. Divorce can be the most impactful of all. When the person going through that divorce is also a firm owner, the effect can be particularly significant.

The larger the firm, the more ability it may have to accommodate the challenges one person is facing, but this is not exclusively a small-firm problem. A partner’s divorce can have emotional and psychological implications, productivity consequences, and potentially significant financial ramifications for firms of virtually any size.

Managing partners should be prepared to address those ripple effects.

When a personal crisis becomes an operational one

Divorce is distracting. For a period of time, a partner experiencing the end of a marriage may simply not be able to come to work as their full self. That affects the firm, particularly if the individual is a producer relied upon to perform significant client work or a rainmaker expected to bring in business. Productivity may decline, other lawyers may need to take on additional responsibilities, and leadership may need to ensure clients and matters continue to receive the attention they require.

There is also a broader human dynamic. Law firms tend to be relatively close-knit groups. If a partner’s spouse has been integrated into the firm’s life, a contentious divorce can create disruptions throughout the organization.

That dynamic becomes even more complicated when both spouses are partners in the same firm. Divorce does not necessarily mean they cannot continue as business partners. I have seen divorced spouses continue to own and operate a firm together. But if one of them is going to exit, the situation begins to resemble any other business divorce, only with an additional layer of personal conflict.

Business divorces can be every bit as contentious as matrimonial ones. Combine the two, and you have a powerful opportunity for emotions to cloud business decisions.

When the firm becomes part of the financial conversation

A partner’s ownership interest may also become relevant in the divorce itself.

Valuing that interest can require examination of the firm’s revenues, expenses, how revenue is generated, how it is shared, and how the value of the business has grown over time. Particularly in a smaller firm, this may be the first time the business has undergone that degree of scrutiny or formal valuation.

That process can also create concerns beyond the divorcing partner. Other partners have financial information at stake, and the firm has obligations to protect client confidentiality and privilege while its overall financial health is being examined.

If two married partners are separating and one wants to leave the business, there is another practical concern: timing. One partner may want to be bought out at a moment when the firm simply does not have the capital to do it.

These are many of the same problems that arise whenever a partner wants to leave a firm. Divorce simply infuses them with additional conflict.

Decide the rules before money is on the table

The best protection is to make these decisions prospectively. Partnership and shareholder agreements should contain clear buy-sell provisions defining how the firm will be valued and how one owner can buy out another. This, by the way, is good business practice regardless of why a partner ultimately leaves.

It is much easier to define these things clearly when forming a partnership, than to invent them from whole cloth when emotions are running high. When money is already on the table, agreement becomes much harder.

One mechanism I have used is essentially the business equivalent of the rule parents sometimes use when two children divide a piece of cake: one cuts, and the other chooses the slice. One partner can make an offer to buy out the other, but that partner must also be willing to accept essentially the same offer if the other partner elects to buy instead. That requirement has a way of keeping everyone honest about valuation.

Support the person without joining the conflict

Once a partner is going through a divorce, my most important advice to firm leadership is simple: Don’t take sides. Support the partner as a human being, but do not get involved in the conflict or denigrate the other spouse. If both spouses are connected to the firm, support each of them without turning their personal dispute into the firm’s dispute. And the firm itself should not represent either party. The representation should stay outside the firm so the firm can continue to do business.

Ultimately, managing a partner’s divorce is both a human issue and a business issue. Firms cannot eliminate the personal difficulty involved, but they can plan for its business consequences.

Clear agreements, thoughtful risk management, and leadership that remains supportive without becoming part of the conflict can go a long way toward ensuring that a partner’s personal crisis does not become a crisis for the firm.