Does Your Business Have a Prenup?

Larry King didn’t have a prenup when he got married for the eighth time. So when he allegedly cheated on his wife with her sister, a large part of his estimated $144 million fortune could have been split 50/50 in a divorce under California law had he not ultimately reconciled with his wife. Everyone (except maybe King’s wife) would agree that it was a bad idea for King not to get a prenup.

What does this have to do with business? Everything, because a contract is just a prenup without the carnal component.

Prenups don’t exist for when a couple is head-over-heels in love. Similarly, contracts aren’t written for when two businesses are happily making money in a joint venture, or for the moment when a service provider signs up a new client that is excited about getting something done.

Written contracts exist for when the going gets tough, or when the relationship deteriorates to such an extent that you can no longer do business together. When you have a business dispute, if you have a written agreement, you can use it to resolve your differences. If you can’t resolve the dispute informally, you can take the written agreement to a court and get it resolved there. Handshake deals may often be enforceable, but a judge or jury can’t read a handshake.

More important, a written contract can prevent disputes from arising in the first place. They serve to make sure that everyone knows what is expected of them and what they can expect in return.

Most people don’t get prenups because they feel that they take all the romance out of marriage. There may be something to that. But there is no romance in business. So if your business doesn’t use contracts for at least its most important functions, what’s your excuse?