They say marriage is a partnership. But suppose a potential business partner approached you with the following proposition, what would you think? Would you enter into the partnership?
Here’s what your would-be business partner says: "We’ll have an elaborate signing ceremony for our partnership contract, with all your business associates, family, and friends invited," he says. "But the contract itself will have nothing more than symbolic value. The terms of the contract are standard, applying to all such partnership agreements."
"However, you won’t know in advance what you are signing up for. All you will know for sure are three things: (1) more than 50% of such partnerships break up, (2) state legislatures can change- and frequently have changed- the nature of these contracts retroactively, and (3) at present, the situation in all 50 states is that I am completely free to renege on the terms of our partnership contract and there’s no way you can hold me to the contract."
Sound good? Wait, there’s more!
Suppose you tell your would-be partner that you’re worried by all this. You want to reduce the uncertainty of the situation by making a prior individual agreement with him, outside the terms of the standard contract. "Well," he says, "we can do that, but making an individual agreement won’t do you much good if our partnership breaks up- Courts will say that most of the important provisions of our individual agreement are contrary to public policy, and will disregard them. For example, you won’t be able to stipulate in advance who keeps the key employees in the business, if our partnership splits up."
What if you want to abide by the terms of the partnership agreement, but your partner wants to renege on it, you ask him. "In that case," he says, "you’re out of luck. You’re likely still to have to accept that I get most of the assets of the business, and incidentally your personal life will be severely affected, and you’ll have to move our of your home."
What happens after that, you wonder. He’s got the answer to that too! "What happens then," he tells you, "is that for up to 18 years after I've reneged on the contract (maybe even for the rest of your life), you have to pay me substantial sums of money each month. And the federal and state governments, which didn’t take any interest in enforcing our original partnership agreement, will suddenly involve themselves in enforcing the arrangements under which the partnership was split up. They’ll use the most severe enforcement measures (including sending you to prison) to make sure that you give me money."