A recent case brought to mind the importance of documentation in business endeavors, especially those with personal roots. We had a client who was very successful at property investing. His brother-in-law was eager to learn and the two of them bought a few properties together.
Unfortunately, the brother-in-law had a drinking problem and passed away from alcoholism. The client and his brother-in-law had not signed any written agreement detailing their business arrangement. By default they were tenants in common and our client was only able to access half of the income from the properties after the death. Our client wanted to equalize what he had put into the properties and only be responsible for half of expenses.
Without formal documentation it is far more difficult to prove the arrangement the client had with his late brother-in-law. The moral of the story is that written documentation is absolutely essential. While oral contracts can be enforced, it is much harder to prove their terms if there is a dispute. There is a lot more uncertainty.
People acting in good faith may go into a deal and not think to outline the terms and conditions. If everyone does what they say they’re going to do, then all is well. But what if something happens unexpectedly? Health problems may arise, someone could use the money for personal needs, or a family tragedy could shake the very foundation of the deal.
It comes back to what we always say, “Make sure what you thought the other person heard is what the other person thought you said.” If an agreement is not written down in clear words, how can either party be sure it will stand the test of time?
When a dispute with another person or an entity arises, memories are unreliable and affected by emotions. If an issue is coming down to one person’s word against the word of another, it is difficult to resolve without proper documentation.
Therefore it’s critical to document important decisions and conversations in writing. Follow-up letters or emails can help to ensure that all participants took the same understanding from their discussions and meetings. Well-crafted contracts with precise language and terms can prevent, or at least help you manage, uncertainty and risk when it comes to dealings with business partners, companies, or employees.
At Hamlin | Cody, we assist clients in drafting agreements and documents related to important business decisions. With decades of experience serving as trusted advisers to business people, we consistently come up with practical, strategic solutions to help you achieve your goals.