Law Offices of Vance R. Koven | Latest Blog

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Law Offices of Vance R. Koven | Latest Blog

Why you need a business lawyer to write a contract

Friday, March 27, 2015

There has been a lot of talk among contract-drafting lawyers about a recent case in New York called Buckingham v. Buckingham. In it, a wife who filed for divorce reached a settlement with her husband, which was memorialized in an agreement drafted by the the wife's divorce lawyer, who is prominent in her field. The husband owned a majority stake in a business and the deal was—we think—that if he ever sold out, the wife would get a share of the proceeds.

What the contract said, though, was that if the business was sold the wife would get a share. Eventually, the husband sold his interest, but when his ex claimed a portion, the husband balked, saying that the business had not itself been sold. The court sided with the husband; the contract said what it said, and the court reasoned that the language only referred to a situation where the assets of the business had been sold, not the ownership interests in it.

Well, the court's reasoning may leave something to be desired, but there's no denying that the divorce lawyer a) was unfamiliar with the different types of change of control processes businesses can use, and b) was clumsy in drafting the agreement. On the first point, a business can change hands in three principal ways: it can undergo a statutory merger with or consolidation into another company; it can sell all its assets; or its owner(s) can sell the ownership interests in it. Each of these is documented differently, and has different consequences for taxation and ongoing liabilities, but the bottom line is that when the dust settles the business is controlled by somebody other than who controlled it going into the transaction. If the bottom line is all that matters, as it probably was in this case, then the lawyer drafting the contract has to be able to articulate that in a way that covers all the bases, and this lawyer, skilled in family law but not in business and contract law, didn't. We trust she was well insured for malpractice.

We see a lot of situations, often involving trial lawyers, real estate lawyers, now apparently divorce lawyers, and others, who need to create contracts in particular situations, for example settling cases, but whose skill sets don't include sophisticated contract drafting. They should know when to seek help, and their clients should know to ask them if they are fully up to speed on the drafting problems. Just for the record, we are happy to assist other lawyers on a confidential, behind-the-scenes basis with drafting problems like this.