Facing Foreclosure? 4 Things You Need To Know

The foreclosure process isn't something any homeowner wants to go through. It’s upsetting and can add more problems on top of the issues causing you to default on your mortgage. According to the Mortgage Bankers Association, about 250,000 families face this problem every few months. The process is started by the lender when you default on your monthly mortgage payment.

Your lender won't always try to take away your home, though. If you are able to come up with the money owed or come to a specific agreement with your lender, this can resolve the problem. By communicating with your lender, understanding your rights, and talking to a real estate attorney, you can better understand the process. Before you can look at potential solutions, however, you first need to understand the foreclosure process.

What Is A Foreclosure?

A foreclosure is a legal process that allows a lender to take back ownership of a property from the current homeowner. This typically occurs when the person who borrowed money to purchase the property can no longer make the monthly mortgage payment or are consistently late with their payments. While foreclosure often results in the lender taking ownership of the property or selling it, there are options to avoid losing the home or lessening the damage done to your credit. For example, you can have a short sale or ask for a mortgage release.

If the property is repossessed, the lender can sell the home through a real estate agent or public auction to recoup the money lost. If a public auction is held and there are no bids, the lender becomes the new owner.

Understanding Your Options  

It’s important to understand all of your options legally when you get a foreclosure notice. Talking to your lender immediately is necessary to avoid foreclosure or avoid a heavy hit on your credit. If foreclosure is unavoidable, make sure you are following the procedures correctly to eliminate additional problems.

If you do end up dealing with foreclosure, you're likely to go through the following steps:

1. Default On Mortgage

The first step in the process is when you default on making mortgage payments to your lender. The current owner must default, and this doesn’t usually happen right away. It may take several late mortgage payments or no payment for the bank to start the process.

Typically, a bank will give the homeowner time to catch up on payments because they understand the reality people face. Hardship can happen to anyone, and there is usually a grace period for the borrower. The bank is likely to send you many emails, phone calls, and letters letting you know you owe money.

Banks or lenders also typically offer different payment options to the current homeowner to get back on track and stay in their home. It is in the best interest of both parties that payments are made. The bank wants their money, and the homeowner wants to remain in their home. The bank isn’t interested in kicking people out of their homes; they are in the business of lending money to make money.

Usually, a lender cannot file a notice of default until a month after contacting the homeowner to discuss the present financial situation. This gives the owner time to figure out a plan. Sometimes selling the home before getting a notice is an option. If you are able to do this, you can pay off what is owed and find a smaller or cheaper home. This is great for homeowners who already have a lot of equity in the home and may be your best option. If it's not, seek guidance from a financial advisor, HUD, or an REO realtor in your area.

Reasons for Default

There are a number of reasons why someone might default on their mortgage:

  • Unemployment
  • Credit Card Debt
  • Medical expenses
  • Relocation sudden
  • Excessive debt
  • Divorce
  • Legal problems
  • Loans
  • Can’t sell the home

2. Notice of Default

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When the homeowner or borrower cannot come up with the money, the bank or lender will send a notice of default in the mail. The letter usually comes as a certified letter and gives the homeowner 90 days to pay the most recent payment. This is the first formal attempt in the process of foreclosure. Once received, the homeowner should make plans to pay off the debt so the process doesn’t proceed.  If you are able to catch up on payments, you can have your mortgage reinstated.

3. A Notice Of Sale

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After the certified letter comes and you cannot come up with the funds to get current on your mortgage, the default process continues. The third step is known as a notice of sale. You will be notified that the home will be sold by the lender at a home auction within 21 days.  This will come as another certified letter in the mail.

The notice of sale will also be published in a weekly newspaper for three weeks. This helps allow potential buyers to learn of the sale. Even though this process is going on, the owner has the option to still pay back what is owed and can reinstate their mortgage. They have until five days before the home goes to auction to do so. This is why the process takes time. Don't panic if you receive a notice of sale. You're not being kicked out of your home just yet.

4. Property Is Auctioned

During the auction part of the process, the home is sold to the highest bidder. The new buyer must pay the full amount immediately. This new buyer will get the lender’s deed after the completed sale of the property. They then become the new official property owner. Once this is finalized, the new owner has to serve the old owner or occupant of the property a quit or move out notice. Sometimes this doesn’t work, and the new owner must to go through the eviction process with the courts to get the individual or family out of the home.

What Happens If The Home Doesn’t Sell At Auction?

If your home doesn’t sell at auction, the property becomes a real-estate owned property. This is also referred to as an REO property. However, just because it doesn’t sell doesn’t mean you and your family can remain living in the home. When the bank owns the foreclosure, they have every right to evict you from the property. Sometimes they will offer the previous owner relocation assistance. Even if they don't, the current resident or previous owner can ask for assistance in relocating.

Making The Process Easier

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If you defaulted on your mortgage and get a foreclosure notice in the mail, be sure to have all your financial information gathered. Have your basic loan and financial information on hand when you call your mortgage company. This includes your mortgage statements and information about any other debt such as student loans, car loans, and credit card debt as well as all income and tax information.

You should be ready to explain the current situation you’re in, the hardship, and why you are having trouble making your mortgage payments. Be honest and upfront with the lender so you can work towards finding a solution. You may also want to find out if you’re eligible for a mortgage release or short sale.

Remedy The Situation

Once you've talked to your lender, it's time to look at solving your financial problems. If possible, you should look for ways to make enough extra money to catch up on your mortgage. There are some options here. You could pick up a second job or, if you're married and only one of you works, the other person could get a short-term job.

If you have children, having an additional job can be taxing. However, getting a part-time job from home can help relive debt issues. Getting another job might be too much depending on your circumstances, but with a job that allows you to work remotely, you may be able to earn additional money and make up your payments. These kind of jobs are prolific today. Any hobbies you might have could also make you money on the side that would be less taxing.  

Another option to consider is a consolidation loan. These loans can merge some of your other debt, including credit card debt, into one single loan. Often, these loans have a lower interest rate than some or all of the combined debt. That means your consolidation loan payment is likely to be less than the total monthly payments you were making to the individual lenders.

There are a variety of life issues that cause a homeowner to face foreclosure, but there are options out there. Work with your lender and be open to the various solutions they present.

Conclusion

A foreclosure can be detrimental to you and your family. It can ruin your credit and impact the way you live for several years. Acting early can minimize the damage, though. When this process occurs, it's vital that you understand that you do have options. By learning about the process and understanding what your rights are, you'll be able to make informed decisions regarding your mortgage.

Regardless of your circumstances, you want to act as soon as possible and find a plan that works for you.

How To Choose The Right Divorce Lawyer

A divorce is a process of terminating a marital union. Divorces are emotionally draining, and if your partner wants a part of your wealth or children are involved, it is even more stressful. Finding the right divorce lawyers to help you with the divorce may be difficult since not all lawyers specialize in this area. It is important that you find someone who is experienced in handling such matters and knows everything about the divorce process. This maximizes your chances of a beneficial outcome for yourself.

It is important to identify the right attorney as this saves you a lot of money and time. Court proceedings will be faster and potentially less expensive. You’ll avoid the extreme stress associated with the divorce process, which is typically long and drains you financially and emotionally. If you don’t know how to look for the right divorce lawyers, you will find this article beneficial. It highlights who divorce lawyers are, why you need them and tips on how to choose the right one.

Is There A Need For Divorce Lawyers?

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You need a divorce lawyer to help in the dissolution of the marital relationship. This typically entails several issues, including custody of children and division of property. You should ensure that you work with a divorce attorney who you feel comfortable with on a personal level so that you can discuss all aspects related to the divorce without worrying about having to expose personal information. Divorce is emotionally draining, which is why it requires delicate skills in dealing with people who are divorcing and the legal know-how. You need to hire divorce lawyers because of:

Experience

A qualified divorce attorney has experience in family law that you might not have. While you may have a little legal knowledge, there is no reason to handle your divorce. Finding a divorce attorney will not only provide you with the much-needed experience. If you choose to handle your divorce, you’d probably make a crucial error if you are not familiar with the paperwork involved or the court proceedings.

Unilateral Decision

Most divorce cases entail a unilateral decision. One party is typically for the divorce while the other opposes it. This can be emotionally draining as it will accompany disputes outside of court, which complicates case issues further. Therefore, if you want the divorce proceedings to be handled with the required expertise and finesse, hiring divorce lawyers is your best bet.

Avoid Mistakes

The legal system of divorce proceedings is complicated. Besides, the divorce is stressful, which makes it even harder for you to think clearly. When you don’t have a clear mind, there is a high likelihood you’ll make mistakes. When you hire an experienced divorce lawyer, you’ll be covered as he or she will circumvent any potential error you’d probably make.

Reducing Emotional Stress

Going through a divorce is emotionally draining. You need a divorce lawyer, who is knowledgeable and organized to take care of any legal issues that arise in the entire divorce lawsuit and address concerns and needs you may have. This eases some emotional stress, making it easier for you to go through the divorce process, including all the court proceedings.

Objective Opinions And Advice

One advantage of hiring a divorce attorney is that he or she will provide objective advice and opinions. This is because they can view the case from a different angle as they are neither invested emotionally in the case nor affected by it. They will guide you in the trickiest parts of the divorce.

Paperwork

Divorce entails a lot of paperwork. Sometimes, what needs to be filled is not simple. Without the help of experienced divorce lawyers, you might not even know where to start. When you hire an attorney, you are certain that all the complex issues of the divorce will be taken care of.  

Provide Information On How To Choose The Right Divorce Lawyers

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We have compiled a list of tips to help you choose the right divorce lawyers. These include:

Decide On The Preferred Divorce Process

This is the first decision you’ll have to make. You should decide whether you want to use litigation, mediation, collaborative divorce or any other divorce process at your disposal. After that, you will match the divorce process you want with the right attorney. If you want the divorce to be settled amicably, don’t hire shark attorneys who will probably escalate the divorce conflict. 

Make A Decision On The Legal Services You Need

Each divorce is unique, and therefore, you will need legal advice, but you don’t have to pay a $400 per hour for divorce attorneys. However, if you own big companies or assets, or in a complicated financial situation, you might need one, even when the fees are exorbitant. If you have a short marriage, no real estate or kids, and you’re not dividing any retirement plans, hiring big law firms is an overkill. In that case, look for someone who isn’t exorbitant.

What Can You Afford?

You need to consider what you can afford as no one wants to pay thousands of dollars to a divorce lawyer. You have to balance the legal fees. Don’t go for someone who will charge unreasonably, but someone who is affordable but can perfectly deal with your divorce situation.

Be Realistic

Divorce is a legal process meant for resolving custody issues and dissolving your assets. The attorney’s job is to represent you. Even though you might want him or her to listen to your sadness, pain, anger or frustration, you should be realistic since they are not trained as therapists. If you need therapy, you should visit a therapist, otherwise don't overburden the lawyer on matters he or she can't help.

Stay Focussed On The Goal

You want to file for divorce and avoid lifestyle depreciation. This should be your goal, so don’t let emotions get the better of you and get rampant in property negotiations as this should not be in the bigger picture. Otherwise, your divorce will take a longer, more expensive and more litigious.

What Do You Want?

You should know what you want before seeking the services of divorce lawyers. Therefore, before proceeding to the attorney, consider other alternatives, such as traditional litigation. If the divorce does not involve children or finances, it might be better if you hired a mediator to negotiate the divorce terms. Mediation is faster and cheaper. So if you decide to go to divorce lawyers, ensure this is the last resort or the necessary choice.

Identify And Interview At Least Three Potential Attorneys

You should take time to research the attorney. The internet might be of help here. Once you settle on the three most preferred lawyers, you can now interview them to find out their area of practice and whether they will be helpful in your divorce. You might also want to consider their legal fees. Go for the lawyer who seems to be the best negotiator.

Look For Red Flags

Many attorneys will tell you what you want to hear so they can close the deal. If they make promises, don’t believe it. If in the interview process or discussing your case, the lawyer divulges confidential information from other cases or if they aren’t respectful; you need to find another lawyer who has positive traits. Also, consider a lawyer who is not constantly distracted by emails and phone calls.

Choose The Attorney

The divorce lawyer you go for should be knowledgeable, local, professional, responsive, and a good communicator. It is someone you feel comfortable with and trust. The attorney should also be affordable.

Conclusion

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Just like any profession, there are good attorneys and bad ones. You should be careful when choosing an attorney, but it is up to you to do your homework and ask the right questions so you settle for the best divorce lawyer. The best divorce attorneys will listen to your concerns, ask queries about what you want to achieve, and provide honest assessments of your divorce so that you achieve your divorce goals. The lawyer should be knowledgeable, local, professional, responsive, great communicators and trustworthy. We hope this article has adequately addressed what divorce lawyers are, why they are important and tips on how to choose the right one.

Rules of Married Filing Separately

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When you are married, you have the choice of filing your taxes jointly or separately. What are the benefits? Here we discuss the option of married filing separately on your tax returns.

What Is Married Filing Separately on Taxes?

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Married couples that file their taxes together, also called filing jointly, file with the same return. They take joint responsibility for the information on the return and the amount of taxes that are owed to the government. When you are married and file separately, each person in the couple can have a separate responsibility for the taxes owed. Filing separately while you are married can disqualify you from a large number of tax breaks. However, there are some situations that would warrant married filing separately (MFS) versus married filing jointly (MFJ).

Is There a Need to File Separately if You Are Married?

Here we will discuss situations that could create benefits for a person that is married filing separately.

You Need to Separate Your Tax Liability

There may be a need to separate your tax liability from that of your spouse. If you sign a joint return, both people are responsible for whether the information on the return is correct. If penalties or additional taxes are owed, both people are responsible. If you think your spouse is less than truthful about income or deductions, you may want to separate your tax liability. If you are audited by the Internal Revenue Service when you file separately, you are only responsible for paying what you owe on your earnings. In a situation where your spouse’s income is significantly higher than your own, it may be especially advantageous to submit your tax returns as married filing separately.

One Spouse Has Substantial Itemized Deductions

If both spouses have taxable income and at least one person, usually the spouse with lower income, has substantial itemized deductions that are limited by adjusted gross income, it may be helpful to submit a married filing jointly return. Itemized deductions can be limited by your adjusted gross income. Some of these deductions include:

  • Charitable deductions – deductible up to 20%, 30%, or 50% of adjusted gross income, depending upon type of gift
  • Medical expenses for those under age 65 – deductible if they are greater than 10% of adjusted gross income
  • Medical expenses for those age 65 or older – deductible if they are greater than 7.5% of adjusted gross income
  • Miscellaneous expenses, including tax preparation costs, investment expenses, and unreimbursed business expenses – deductible if they are greater than 2% of adjusted gross income
  • Personal casualty losses – deductible if they are greater than 10% of adjusted gross income

Here’s an example of a situation where one spouse has substantial itemized deductions. A couple has a large quantity of unreimbursed healthcare costs. The spouse with the most medical expenses can calculate the deductibility against his or her lower adjusted gross income. When filing separately, the allowable deductions could be higher than if the couple submitted their return as married filing jointly. Therefore, the couple submitting a married filing separately return could reduce the amount of tax liability.

Other Considerations for Married Filing Separately

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Your state income taxes are another factor to consider if you want to submit tax returns as married filed separately. Calculating federal and state taxes owed may influence your decision to file separately. Here are some other considerations.

Community Property States

In community property states, marital property is owned by spouses equally. Marital property includes earnings, property purchased with earnings, and debts gained during the marriage. For example, if your spouse earned $60,000, half of that would be reported as your income even if you did not work outside the home. In general, assets owned by each individual before the marriage and after the couple physically separates are considered that individual’s property.

Community property states require different rules for distributing income and deductions when filing separately. Community property states include Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin (as of 2018). Even if only one spouse lives in a community property state, community property deductions must be split in half, with each spouse reporting half of the deduction on each return.

Other Reasons for Filing Separately

Some spouses may prefer to keep their finances separate. If the taxes owed when submitting a return as married filing separately are the same or very similar than if you file jointly, you may choose to file separately.

If you or your spouse has income-based student loan payments, you may want to file to keep the payments based on only the student’s income and not the combined income of the couple. If you or your spouse owes unpaid taxes and the Internal Revenue Service may take a refund to offset the balance due, you may want to file separately. If both you and your spouse earn a high income, it may be advantageous to file separately.

There may be non-financial reasons a couple would want to submit a married filing separately return. One member of the couple may not be able to consent to filing a joint return. One member of the couple may be unwilling to consent to filing a joint return. The married couple may be separated, but not yet divorced, and wish to keep their tax returns separate. The couple may live separately and one spouse qualifies as the head of household.

Head of Household Status

A legally married person may be considered unmarried by the IRS. If that is the case, that person may choose to file as head of household rather than married filing separately. Certain criteria must be met to submit returns as a head of household filing status. One of these criteria is that the spouses did not live together for the last six months of the year. Another criterion is that a child or other dependent must have had their primary residence with you for more than half of the year.

As head of household, you must have had to pay for more than half the cost of maintaining the household. If you are eligible to file as a head of household, there are certain tax deductions and credits that are available to you because of your status. However, determining status as head of household can be tricky. Consult your tax professional or the IRS What Is My Filing Status tool for more information.

Tax Rates of Married Filing Separately

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Here are the federal tax rates in 2018 for those who are married filing separately, according to Forbes magazine.

If Taxable Income Is

Then Tax Due Is

$0 – $9,525

10% of taxable income

$9,526 – $38,700

$952.50 + 12% of the amount over $9,525

$38,701 – $82,500

$4,453.50 + 22% of the amount over $38,700

$82,501 – $157,500

$14,089.50 + 24% of the amount over $82,500

$157,501 – $200,00

$32,089.50 + 32% of the amount over $157,500

$200,001 – $300,000

$45,689.50 + 35% of the amount over $200,000

$300,000 and above

$80,689.50 + 37% of the amount over $300,000

Amending Your Return

If you change your mind about whether to submit your tax return as married filing separately or married filing jointly, you can file an amended return. However, some restrictions apply to filing an amendment, also known as a Form 1040X. If a couple files separately, they have 3 years from the due date of the original return (not counting extensions) to switch to a single return. However, if the couple files jointly, they only have until the April 15th deadline of that tax year to change their mind.

Cons of Married Filing Separately

There are negative impacts of the married filing separately status. One is that the two filers must both itemize or both claim the standard deductions. One filer cannot itemize while the other claims the standard deduction if they submit their taxes as married filing separately. In addition, those who submit taxes as married filing separately are unable to claim a number of tax breaks. These include the following:

  • Adoption Tax Credit
  • American Opportunity or Lifetime Learning Educational Credits
  • Child and Dependent Care Expenses
  • Credit for the Elderly and Disabled
  • Earned Income Credit
  • IRA contributions (under certain circumstances)
  • Passive real estate loss (under certain circumstances)
  • Student loan interest deduction
  • Tax-free exclusion of Social Security benefits
  • Tax-free exclusion of U.S. bond interest
  • Tuition and fees deduction (currently available through tax year 2017, but this may change in the future)

Some other tax breaks are significantly reduced. The following will be half of the amount as the deduction on a joint return.

  • Alternative standard deduction
  • Capital loss deduction
  • Child tax credit
  • Standard deduction
  • Saver’s credit

Conclusion

You should always do your research before filing your tax return. Crunch the numbers and see whether submitting your return as married filing separately, married filing jointly, or filing as head of household is the best for you. There are some circumstances where married filing separately, as discussed here, is the best choice. Consult your tax professional for up-to-date advice. You can also consult the IRS website for tools such as the What is My Filing Status interactive tax assistant for more information.

8 Things You Should Know About A Partnership Agreement

When two or more people start a business, they need to agree on how the business will be conducted. This will help the partners to prevent any future disagreements, and if any emerge, there should be a detailed legal mechanism on how to resolve them. There are so many things that partners should agree on including how much partners will contribute to the formation of the business, how they will be salaried, and what duties each partner is responsible for. These aspects should clearly be delineated in a partnership agreement.

So what is a partnership agreement? This article highlights what this agreement is, its importance, and things to consider when drafting it.

What Is A Partnership Agreement?

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A partnership is a business with two or more people, with each owning part of the business. The partnership agreement sets out all the terms and conditions that the parties agree to when forming a partnership. In fact, the partnership agreement is the most important document for a partnership. If a partnership begins without an agreement, it can be jeopardized if something happens to one or more of the partners.

In the partnership agreement document, every possible contingency is included, such as profit sharing ratios and the duties and responsibilities of each partner among other aspects. In the partnership, each partner should buy in or invest in the partnership and they typically share the profits and losses based on the percentage share of ownership.  

Why Involve An Attorney

The partnership agreement is a binding contract. Since it is a legal document, this implies that it is best to have an attorney guide you and provide the much-needed advice when including terms and clauses in the agreement. This way, it will provide adequate guidelines on all business aspects that need to be covered in the contract.

Is There A Need For A Partnership Agreement?

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Running a business on a handshake is not the smartest idea since there may be disagreements, which may prove difficult to resolve if there are no clear set guidelines. Having a partnership agreement gives you and your partners the protection you might need just in case something happens that may endanger the business relationship. It answers the “what if” questions so you don’t have to deal with them when a crisis strikes. For instance, if a partner decides to leave the agreement, it has clearly set guidelines on what should happen.

A partnership agreement is vital as it includes and guides partners in all the following aspects:

  1. 1
    Name of the partnership. There are various types of partnerships, such as LLCs and joint ventures, and the name should be specified in the partnership agreement.
  2. 2
    The term of the partnership. Partnerships can be perpetual or span a specific term length.
  3. 3
    Name the partnership is doing business as (if different). For instance, if the business is under different names or offers different types of services.
  4. 4
    Purpose of the partnership. This entails specifying the activities that the business engages in. This includes the products and services sold and how new services or products will be added.
  5. 5
    The requirements of admitting new partners, including their contributions.
  6. 6
    Types of partners in the partnership. Some of the partners may have more day-to-day duties, such as the general partners, while others may just contribute and have limited participation.
  7. 7
    Types of partners in the partnership. Some of the partners may have more day-to-day duties, such as the general partners, while others may just contribute and have limited participation.
  8. 8
    Each partner’s contribution. This should be specified so that when profits are made, the partners can share according to the amount they contributed. Contributions could be in cash, installments, property, or service.
  9. 9
    The agreement should specify what happens in the event that a partner fails to make the initial contribution.
  10. 10
    It should also clarify whether there will be additional future contributions when the contributions will be accepted, and how they will affect the shares for each partner.
  11. 11
    How profits and losses made through the proceeds of the business will be shared or distributed among the partners, in terms of percentages (percentages, unequal, equal).
  12. 12
    How decisions for the business will be made.
  13. 13
    Duties and responsibilities. Each partner should have an assigned duty and management power, including the skills contributed and the hours for work for each partner.
  14. 14
    Draws to partners. When and how partners should take a draw from the partnership share.
  15. 15
    Financial matters, such as how periodic financial statements and books will be kept and when taxes will be filed.
  16. 16
    The power to be vested in partners to borrow money on behalf of the partnership. How the power is distributed and whether a vote is required to borrow a certain amount.
  17. 17
    Maintenance of records. This entails how and where the records will be kept.
  18. 18
    Meetings. The agreement should clarify when meetings will be held and how many partners will constitute a quorum for meetings.
  19. 19
    The agreement should specify the power of authorizing expenses and the signatures needed.
  20. 20
    The partner time off, including vacations, leaves of absence, and sick leaves should be clearly specified.
  21. 21
    Ownership of assets. The agreement should specify if the partnership owns all assets or whether some are held by the partners.
  22. 22
    Outside activities (those that are restricted and permitted), and the conflict of interest policy.
  23. 23
    Sale or the transfer of a partner’s interest to another partnership, at retirement or another event. It should specify aspects like buy-sell agreements for the partners and the methods involved.
  24. 24
    Non-competition clause. This restricts partners who leave the partnership from competing with the business, within a defined time period and area.
  25. 25
    Continuity of partnership business when a partner dies, leaves, or is terminated as in the case of a buy-sell agreement.
  26. 26
    Expulsion of a partner from the partnership.
  27. 27
    Amendments to the partnership agreement, how and when.
  28. 28
    Severability if a part of the agreement is found to be invalid and doesn’t affect the contract.
  29. 29
    Adherence to state law. This is mainly for the purpose of litigation and establishing the state in which the litigation will be held.
  30. 30
    Mediation and arbitration of the dispute, including mandatory arbitration, if the partners agree to it.

Provide Information On Things You Should Know About A Partnership Agreement

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We compiled 8 vital things you should know about the agreement, which are:

1. Ownership.

This highlights what to do if something happens regarding the ownership. If you sell the business, the agreement should specify which partner will get what and the partnership’s position of including new partners. Here, the agreement states whether there is the option of buying out another partner. Therefore, the agreement should explicitly describe how ownership interests should be handled in different scenarios, including in the event that a partner retires, dies, or in case of bankruptcy. Include a non-compete clause to prevent a partner from competing with the business once he or she leaves.

2. Critical Developments

The agreement should cover for unexpected occurrences, such as when a partner gets sick or is dying. It also covers what will happen in case of a buyout. It should set retirement provisions and circumstances in which you can change the partnership.

3. Dispute Resolution

While no one wants to think about this, things could get ugly between partners, which is why you should consider this in the agreement. There should be a mediation and resolution process if disputes arise as it might save partners from lawsuits.

4. Dissolution Or Exit Strategy

The agreement should show the events that could trigger dissolution and how the affairs that would be affected would be wound up. This includes all legal means of ending the partnership. This is a security if you or your partners can’t agree on the future of the business. You also need to know the state requirements of dissolving the partnership.

5. Decision Making

This is a safeguard since you won’t be agreeing on everything. Therefore, define how daily management and long-term decisions will be made. Define who gets the last say and the type of decisions that require unanimous votes by the partners, and what decisions can be made by a single partner.

6. Contributions

The agreement should clarify what each partner must stake in the formation of the partnership, and the ongoing finances of the business. It should specify how much each partner should contribute to the commencement of the business. Besides, it should state the responsibilities of each partner in the future needs of the business, including equipment, customers, effort, and time.

7. Partner Roles In Signing And Authorizations

There should be a clear understanding of what the offices or managers of the business are authorized to do on behalf of the business.

8. Distributions

The partnership agreement should detail how partners will share profits, how much each partner will be paid. The agreement should also include the salary for each partner.

Conclusion

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Every partnership should have an agreement to make sure that every potential situation is covered for. The partnership agreement is a binding contract, which implies that you need an attorney to guide you to draft it, and also help resolve any future disputes or issues. In most instances, it should stipulate that what matters partners should vote for, their contributions, distributions, what should be implemented, ownership, critical developments, dispute resolution, dissolution or exit strategy, and partner roles in signing and authorizations among other aspects.

However, periodic reviews and additions are paramount and keep up to date with legal requirements. We hope this article has adequately addressed what a partnership agreement is, why it is important, and things to consider when drafting one.