Legalities & Realities®: The Blog

You may learn more about us and how we operate by visiting these pages: About Us and What Sets Us Apart.

This blog post is for informational purposes only and does not constitute legal advice. For specific legal counsel, please contact our office directly.

In many litigations, the outcome is not decided solely by the strength of the facts or the sophistication of the legal arguments. Increasingly, courts are focused on a different question: 

What happened to the evidence? 

When documents or data are destroyed after a legal dispute is reasonably anticipated, the issue is known as spoliation of evidence—and it can fundamentally alter the trajectory of a case. 

 
What Is Spoliation? 

Spoliation occurs when a party destroys, deletes, overwrites, or fails to preserve evidence that is relevant—or potentially relevant—to a legal dispute after a duty to preserve has arisen. 

Spoliation can involve: 

• Emails or electronic files 
• Text messages or electronic communications 
• Financial records or drafts 
• Data deleted under routine retention policies 
• Electronic data reduced to paper form while the underlying electronic information is destroyed 

Importantly, spoliation does not require malicious intent; it does not have to be willful. Courts recognize that evidence can be lost through negligence, poor systems, or failure to implement proper preservation measures. 

When Does Spoliation Become a Legal Problem? 

The duty to preserve evidence arises when litigation is reasonably anticipated, not when a lawsuit is filed, continues throughout the discovery process, and right until the end of the case. 

Once that point is reached: 

• Routine document destruction must stop 
• Deletion policies must be suspended 
• A Litigation Hold (or “Document Hold”) notice and plan should be implemented 

Destroying evidence after that point—intentionally or not—can expose a party to spoliation claims. 

Who Can Get in Trouble for Spoliation? 

Spoliation is not limited to one side of a lawsuit or one category of litigant, or even to the parties themselves, as attorneys for the parties have the responsibility as well. 

Businesses 

Companies may be held responsible when: 

• Employees delete relevant emails or files 
• IT systems continue auto-deletion 
• Electronic data is not properly preserved 
• Litigation holds are not issued or enforced 

Corporate size or sophistication does not excuse failures in preservation. 

Executives, Fiduciaries, and Professionals 

Individuals who control key communications or records—such as executives, partners, trustees, or fiduciaries—may face scrutiny if evidence in their possession is destroyed after litigation is reasonably anticipated. 

Preservation duties extend to: 

• Personal devices used for business 
• Personal email accounts used for work 
• Drafts and informal communications 

Individuals 

Individuals involved in any type of litigation, including business litigation, employment, matrimonial, or trust-and-estate disputes are subject to the same preservation obligations. Deleting texts, emails, or electronic files—even on personal devices—can create serious exposure. Spoliation is not a “corporate-only” problem, individuals and
legal counsel, too, are responsible for document preservation. 

Does Printing Documents Solve the Problem?

No. The destruction of electronically stored information (“ESI”) may still constitute spoliation even if paper copies are retained. Courts recognize that electronic data carries unique evidentiary value, including metadata and context that paper copies do not preserve. Printing and deleting is therefore not a safe harbor. 

What Must Be Shown to Establish Spoliation?

Courts generally examine whether: 

1. A party had an obligation to preserve evidence 
2. The evidence was destroyed with a culpable state of mind (which can include negligence) 
3. The destroyed evidence was relevant to claims or defenses 

When these elements are present, courts may impose sanctions. 

 
What Sanctions Can Courts Impose? 

The consequences of spoliation can be severe and case-altering. 

Potential sanctions include: 

• Adverse inference instructions, allowing a jury to presume the destroyed evidence would have been unfavorable to the party who destroyed it 
• Preclusion of evidence or defenses 
• Compelled disclosure of litigation-hold communications 
• Monetary sanctions 
• Severe credibility damage before the court 

In some cases, spoliation issues become the dominant issue in the litigation—overshadowing the underlying dispute entirely. 

Why Litigation Holds Matter in Spoliation Cases 

A properly implemented litigation hold (also known as document hold) is a key step in litigation discovery and is often the difference between: 

• An unfortunate data loss that can be explained, and 
• A spoliation finding that reshapes the case 

Courts closely examine whether a party: 

• Implemented a litigation hold promptly 
• Identified relevant custodians and data sources 
• Suspended routine deletion practices 
• Took reasonable steps to monitor compliance 

Where litigation holds are missing, vague, or ignored, courts are far less forgiving. They also have to be maintained throughout the litigation and updated, as needed. 

 
The High-Stakes Reality 

Spoliation does not merely create procedural headaches. It can: 

• Shift leverage 
• Undermine defenses 
• Expose sensitive internal practices 
• Change settlement dynamics 
• Decide cases before trial ever begins 

For businesses, executives, fiduciaries, and individuals involved in disputes over income, equity, or significant assets, evidence preservation is not an administrative detail—it is a legal requirement. 

Final Thought 

Spoliation is rarely intentional—but its consequences are rarely accidental. Early legal guidance, disciplined preservation practices, and properly implemented litigation holds protect not just evidence, but outcomes. Handled correctly, preservation keeps the focus where it belongs: on the merits of the case. Handled incorrectly, it can become the case. 

With offices in Albany, Buffalo, Rochester, New York City, we can help clients across New York State.   

To learn more about these topics, check out our Legalities & Realities® Podcast and other related blog posts:   

• Blog posts: 
  • Navigating Business Disputes: Understanding New York's Uniform Commercial Code (UCC) 
  • Can You Use Company Money to Pay Legal Fees in Business Disputes? 
• Legalities & Realities® Podcast:
  • All About Legalities and Realities 

You may learn more about us and how we operate by visiting these pages: About Us and What Sets Us Apart.  

This blog post is for informational purposes only and does not constitute legal advice. For specific legal counsel, please contact our office directly. 

Family-owned and closely held businesses are the backbone of the American economy. They are also some of the most complex organizations to operate because money, legacy, and personal relationships are tightly intertwined. When these elements collide, disputes do not simply impact a company—they affect wealth, ownership, and family dynamics for years to come. 

Below are the most common problem areas we see at our firm, and why planning ahead is essential to protecting the business—and the people—behind it. 

1. Ownership Disagreements: When Expectations Outpace Documentation 

Many family businesses begin with handshakes and trust. Problems emerge when: 

• Ownership percentages are unclear or disputed 
• One sibling works in the business while others do not 
• A founder made “informal promises” to different family members 
• Older operating agreements no longer reflect reality 

These disagreements can lead to shareholder oppression claims, demands for buyouts, books-and-records actions, and even litigation over whether someone was improperly excluded from decision-making. 

Ownership disputes also surface during divorce, when a spouse claims an interest in the business, and in estate litigation, when heirs fight over ownership after a parent’s death. 

2. Unclear Roles and Responsibilities: The Source of Many Internal Conflicts 

Common issues include: 

• Family members receiving titles without clearly defined duties 
• Non-family executives unsure of to whom they report 
• Long-term employees believing they were promised ownership or promotions 
• Family members clashing over how much work each person contributes 

These problems can evolve into business disputes, breach-of-fiduciary duty claims, employment actions, and valuation arguments during a divorce. Roles should be documented, not assumed. Otherwise, expectations become liabilities. 

3. Compensation, Distributions, and Perks: When Money Blurs the Lines 

In closely held businesses, compensation is rarely just a paycheck. It often includes: 

• Special distributions to certain family members 
• Bonuses, perks, or expense reimbursements 
• “Sweat equity” or informal promises of future ownership 
• Lifestyle expenses that run through the business 

Without clarity and equality, resentment builds. The result can be wage claims, shareholder disputes, marital litigation involving “hidden income,” or accusations of fiduciary breaches when a family member controls the finances. 

4. Transparency and Access to Records: The Tension Between Control and Trust 

One of the most common triggers for litigation is lack of transparency. Issues include: 

• A single person controlling financial data 
• Delayed or incomplete financial reports 
• Questions about whether funds were misused 
• Family members denied access to corporate books 

This lack of visibility often leads to accounting actions, demands to inspect records, breach of fiduciary duty claims, and—at its worst—accusations of financial misconduct. Transparency protects everyone. 

5. Succession and Transition Problems: The Silent Risk to Every Family Business 

Succession is where legal, emotional, and financial complexities converge. Common challenges include: 

• The founder not wanting to step back 
• Children disagreeing over who should lead 
• In-laws becoming involved in operations 
• Promises made to employees or family members that were never written down 
• Documents that are decades old and no longer aligned with the business 

When a founder becomes ill, retires, or passes away, unclear plans often erupt into litigation—both inside the business and within the family. 

6. Personal Relationship Breakdowns: When Family Dynamics Become Legal Disputes 

Family tension often drives business litigation more than the legal issues themselves. Consider scenarios like: 

• Sibling rivalries that spill into boardrooms 
• Divorce bringing business valuation and ownership into question 
• In-laws influencing financial decisions 
• Caregiving disputes regarding aging parents with significant assets 
• Conflicts between active and non-active family shareholders 

Relationship breakdowns drive claims of oppression, removal of fiduciaries, will contests, and even dissolution proceedings. When relationships fracture, the business often becomes the battleground. 

7. Outdated or Missing Documentation: The Hidden Liability 

Many legal conflicts arise not from bad acts, but from: 

• Operating agreements drafted years ago and never updated 
• No buy–sell agreement 
• No written succession plan 
• Unclear employment agreements 
• Old wills or trusts that no longer match the business structure 

When documentation is outdated, the law fills in the gaps—and that rarely reflects what the family intended. 

Why These Problems Matter to High-Net-Worth Families 

For successful entrepreneurs, executives, and professionals, these disputes do more than threaten personal wealth. They can: 

• Destabilize business operations 
• Erode family relationships 
• Increase tax exposure 
• Freeze assets during litigation 
• Invite invasive financial discovery 
• Damage reputations 

Preventing these outcomes requires more than good financial management or good legal documents—it requires the coordination of both. 

How to Protect the Business and the Family 

While each situation is unique, we consistently recommend: 

1. Updating legal agreements regularly—bylaws, operating agreements, shareholder agreements, trusts, and compensation structures. 
2. Documenting roles, compensation, and expectations for both family and non-family members. 
3. Maintaining clear financial records and transparent reporting. 
4. Aligning financial planning with legal planning—especially regarding succession and estate strategies. 
5. Conducting periodic “family business checkups.” 

Proactive planning is almost always less expensive—and far less disruptive—than litigation. 

The Glennon Law Firm: Protecting Businesses, Families, and Wealth 

For more than a decade, we have represented business owners, executives, and families across New York in navigating disputes involving: 

• Business and partnership conflicts 
• Executive employment and restrictive covenant issues 
• Divorce involving businesses, income, or significant assets 
• Trust and estate disputes, fiduciary breaches, and contested wills 

If you own a family or closely held business and want clarity, protection, or strategic guidance, we are here to help. 

Our litigation team advises businesses, professionals, and fiduciaries across New York in high-stakes disputes. If you have a question about litigation strategy, verdict exposure, or settlement risks, we are here to help.  

With offices in Albany, Buffalo, Rochester, New York City, we can help you across New York State. 

You may learn more about us and how we operate by visiting these pages: About Us and What Sets Us Apart.  

To learn more about these topics, check out our Legalities & Realities® Podcast and other related blog posts:   

• Blog posts: 
  • Understanding Fiduciary Duties in Business Partnerships: What Every New York Owner Should Know;  
  • Navigating Legal Landscapes in Closely Held Businesses 
• Legalities & Realities® Podcast: 
  • Business Divorce: Can You End Your LLC Business When Owners Don't Agree? 

This blog post is for informational purposes only and does not constitute legal advice. For specific legal counsel, please contact our office directly.  

For New York families and business owners with substantial wealth, modern trusts increasingly rely on a role called the trust protector. The title sounds reassuring. In practice, it can be one of the most misunderstood—and litigated—positions in sophisticated trust structures. 

This post explains what a trust protector is, how the role differs from a trustee, whether a trust protector can be removed, and whether trust protectors can be pulled into litigation and discovery, all through a New York-specific lens. 

What Is a Trust Protector? 

A trust protector is a third party named in a trust instrument and granted specific, enumerated powers that are not typically exercised by a trustee, settlor, or beneficiary. 

Importantly: 

• There is no inherent legal meaning to the title “trust protector.” 
• A trust protector does not automatically “protect” the trust. 
• The role exists only to the extent created and defined by the trust document itself. 

Trust protectors are most often used in high-value, long-term trusts to provide flexibility, oversight, or control where traditional trustee powers are either too rigid or too conflicted. 

New York’s Starting Point: No Trust Protector Statute 

Unlike many jurisdictions, New York has no statute that defines, regulates, or standardizes trust protectors. 

That absence has consequences: 

• There is no default rule in New York stating whether a trust protector is a fiduciary or non-fiduciary. 
• There is no statutory safe harbor insulating trust protectors from liability. 
• Courts look almost entirely to: 
• The trust instrument itself, and 
• General fiduciary and equity principles developed through case law 

In New York, trust protectors operate in a document-driven, case-by-case legal environment, which increases both flexibility and litigation risk. 

Trust Protector vs. Trustee: Oversight vs. Operation 

The Trustee: The Operator 

A trustee is responsible for the day-to-day administration of the trust. Trustees typically: 

• Control and invest trust assets 
• Make discretionary distributions 
• Administer business interests held in trust 
• Owe continuous fiduciary duties 
• Are routinely subject to accountings and court oversight 

Trustees are almost always fiduciaries under New York law. 

The Trust Protector: The Strategic Overseer 

A trust protector, by contrast: 

• Does not manage assets or make routine distributions 
• Acts episodically, not continuously 
• Exercises power only when specific triggers arise 
• Often exists to check trustee power or adapt the trust to change 

Common trust protector powers include: 

• Removing and replacing trustees 
• Changing governing law or trust situs 
• Modifying administrative provisions 
• Approving or vetoing significant decisions 
• Granting or revoking powers of appointment 

This distinction becomes critical once disputes arise. 

Trust Protectors vs. Trust Advisors: A Subtle but Important Difference 

Modern trust drafting often blurs two concepts: 

• Trust advisors typically exercise traditional trustee-like powers, such as directing investments or distributions. Because they control core trust functions, they are often treated as fiduciaries. 
• Trust protectors are more commonly assigned non-administrative, structural, or strategic powers, and trust instruments frequently attempt to label these powers as non-fiduciary. 

In New York, courts do not rely on labels. They examine what powers are actually exercised, not what the role is called. 

Is a Trust Protector a Fiduciary in New York? 

There is no automatic answer. 

Nationally, three competing approaches exist: 

1. Non-fiduciary by default, to encourage service and reduce liability exposure 
2. Fiduciary by default, because significant power should carry accountability 
3. Power-by-power analysis, where fiduciary status depends on the nature of each granted power 

Because New York has no statute, courts are more likely to apply the third approach. 

A trust protector who: 

• Controls trustee selection 
• Alters beneficiary interests 
• Influences business governance 
• Exercises veto power over trustee decisions 

May be treated very differently from one with purely ministerial or advisory authority. 

“Personal Powers” and the Litigation Trap 

Trust instruments often attempt to characterize trust protector powers as “personal” or non-fiduciary. 

Even so, those powers are not unlimited. 

A trust protector—fiduciary or not—may not exercise authority in a way that: 

• Contradicts the settlor’s intent 
• Constitutes a “fraud on the power” 
• Redirects trust benefits for improper purposes 

In New York litigation, this is where many trust protector disputes arise: not from blatant misconduct, but from contested motive, scope, or alignment with settlor intent. 

Can a Trust Protector Be Removed in New York? 

Often, yes—but only if the trust instrument or equitable principles allow it. 

Removal depends on:

1. The trust document

Well-drafted trusts expressly provide mechanisms for removing and replacing trust protectors. Poorly drafted trusts often do not.

2. The scope of authority exercised

The more power a trust protector holds over assets, trustees, or beneficiaries, the more likely court oversight becomes appropriate.

3. Allegations of abuse, conflict, or dysfunction

Courts are far more receptive to intervention where trust administration or beneficiary rights are at risk.

In high-asset disputes, removal of a trust protector is frequently sought alongside trustee removal—especially where control over business interests or distributions is involved. 

Can a Trust Protector Be Sued or Be Subject to Discovery? 

Yes—and this surprises many families. 

Even in New York, where trust protectors are not statutorily defined: 

• Trust protectors can be named as parties in litigation 
• Their communications may be discoverable 
• Their decisions may be scrutinized under fiduciary-like standards 

Courts focus on function, influence, and impact, not titles. 

Where a trust protector’s actions affect trustee selection, business control, distributions, or beneficiary rights, litigation exposure follows. 

Why Trust Protectors Matter in High-Value New York Disputes 

Trust protector disputes commonly arise in cases involving: 

• Closely held businesses owned in trust 
• Second marriages and blended families 
• Dynasty trusts spanning generations 
• Control over voting interests or management rights 
• Conflicts between income and remainder beneficiaries 

In these cases, the trust protector often becomes the pivot point of control—and, inevitably, a litigation target. 

Strategic Takeaway for New York Business Owners and Families 

In New York, a trust protector can be a powerful planning tool—or a structural vulnerability. Because there is no statutory framework, everything depends on drafting, conduct, and context. The same authority that allows a trust protector to stabilize a trust can expose them to litigation if relationships deteriorate or asset values rise. 

When substantial wealth, business equity, or family control is at stake, trust protector disputes are not academic. They are control disputes, and they require litigation counsel who understands both fiduciary law and high-stakes asset dynamics. 

With offices in Albany, Buffalo, Rochester, New York City, we can help you across New York State.   

To learn more about these topics, check out our Legalities & Realities® Podcast and other related blog posts:   

• Blog posts: 
  • When Estates Mishandle Trust Assets: What You Need to Know 
  • When the Court Steps In: Suspending, Modifying, or Revoking Fiduciary Authority in Trust or Estate Matters 
  • When a Fiduciary Fails: How SCPA § 2102 Protects Your Interests in Estates and Trusts 
  • Advice and Direction: Empowering Fiduciaries to Make Confident Decisions 
  • Understanding Suspension and Removal in Trust and Estate Disputes 

You may learn more about us and how we operate by visiting these pages: About Us and What Sets Us Apart.  

This blog post is for informational purposes only and does not constitute legal advice. For specific legal counsel, please contact our office directly.  

When a business becomes involved in litigation—whether a contract dispute, internal ownership conflict, or fiduciary issue—discovery becomes one of the most pivotal stages.  

A particularly important, and often misunderstood component is the corporate representative deposition, where the company, rather than an individual, provides testimony. For business owners, executives, and general counsel, understanding how this works in New York State courts is key to minimizing risk and ensuring strategic positioning. 

What Is a Corporate Representative Deposition? 

In litigation involving a business, the opposing party can require the company to designate someone to testify on its behalf. This is not about personal fault or direct involvement—it is about presenting the company’s knowledge on specific topics relevant to the dispute. 

The company selects one or more individuals to testify and must make a reasonable effort to ensure that those individuals are educated on the relevant topics. This may involve reviewing internal records and consulting current employees. However, businesses are not generally required to seek out or interview former employees or go beyond what is reasonably available internally. 

Who Can Serve as the Company’s Representative? 

The law allows the company itself to decide who will testify. This can be a current employee or, in some circumstances, a long-term consultant or contractor who functions similarly to an employee. The key requirement is that the person be reasonably prepared to speak about the company’s knowledge on the topics outlined in the deposition notice. 

In certain circumstances, using a consultant who is deeply integrated with leadership and decision-making may also allow for protection of communications under legal privilege. 

What Are the Witness’s Obligations—and Limits? 

The person testifying on behalf of the company is expected to: 

• Be familiar with relevant facts that are reasonably available to the business 
• Answer questions truthfully and thoroughly within that scope 

They are not expected to be omniscient or to provide legal conclusions or speculate beyond what the company knows. If the opposing party believes the witness is inadequately informed, they may request a second deposition, but they must demonstrate both the inadequacy and the likelihood that another person holds necessary information. 

What if the Company Does Not Have the Information? 

If the business, in good faith, cannot locate the requested information—especially if the knowledge belonged to a departed employee—it is generally not required to reconstruct history. However, there may be consequences. For example, the company might be limited in its ability to introduce new evidence later at trial on that same topic. 

This underscores the importance of preparing thoroughly and making a clear record of what is and is not available. 

Conclusion: Strategic Deposition Preparation is Essential 

Corporate representative depositions are not just procedural—they are strategic. They shape the record and can significantly impact the course of litigation. For business owners and executives, it is important to have a legal team that: 

• Understands the scope and limits of corporate testimony 
• Protects confidential communications and litigation strategy 
• Ensures that the company’s representative is fully and properly prepared 

Our firm represents businesses, executives, and professionals in high-stakes disputes involving contracts, ownership interests, employment agreements, and fiduciary claims. If your business is navigating litigation, we can help you approach corporate testimony with confidence—and avoid costly missteps. 

With offices in Albany, Buffalo, Rochester, New York City, we can help you across New York State.  

To learn more about these topics, check out our Legalities & Realities® Podcast and other related blog posts:  

• Blog post:
  • Can a Corporation or LLC Sue or Be Sued in New York Courts? What Business Owners Need to Know 
• Legalities & Realities® Podcast:
  • Business Divorce: Can You End Your LLC Business When Owners Don’t Agree? 

You may learn more about us and how we operate by visiting these pages: About Us and What Sets Us Apart. 

This blog post is for informational purposes only and does not constitute legal advice. For specific legal counsel, please contact our office directly. 

Artificial intelligence is everywhere. People use it hoping to avoid the time and expense of consulting with a trained and experienced lawyer. They use it to research legal issues (inaccurately), draft documents (improperly), and to receive quick answers to questions (which may not be correct).

Yes, when properly used it can provide a high-level overview of legal concepts and help people understand the vocabulary of a dispute, but context and nuance are important.

There is an important line people should remember:

AI is a tool. And tools need to be used properly. AI is not legal judgement or advice (it will even make that clear to the user). Judgement is where real legal outcomes are decided.

What AI Does Well—and Where It Stops

AI is good at summarizing general information. It can generally explain what a non-compete agreement is, describe the general concept of fiduciary duty, or outline the stages of litigation in broad terms. That can be useful background or to help someone get their bearings.

What AI cannot do is determine:

• What the actual law in your jurisdiction is
• Which facts actually matter
• Which facts are missing
• How a judge in your jurisdiction is likely to react
• In which direction the law may be shifting
• What strategic tradeoffs should be made
• When not to make an argument—even if it appears legally available

Law is not a multiple-choice test. It is analysis and applied judgement within the specific context of your specific situation. It is not cookie-cutter, particularly not in litigation.

Why Legal Experience Still Matters

Every licensed attorney has completed at least three years of formal legal education, prepared for and passed a rigorous bar examination, and ongoing professional and ethical training. But that is only the starting point.

What truly differentiates experienced legal counsel is pattern recognition built over decades:

• Seeing how similar disputes unfolded
• Knowing which arguments sound good on paper but will fail in court
• Understanding how opposing counsel typically operates
• Anticipating the procedural and strategic moves that are not obvious from statutes or case summaries

These insights do not exist in a database. They exist in experience. AI can retrieve information. It cannot replace judgement formed through hundreds or thousands of real cases, negotiations, hearings, and court decisions.

The Risk of “Mostly Right” Legal Advice

One of the most dangerous aspects of AI-generated legal content is that it can be almost right.

A document can appear polished while:

• Missing a critical exception
• Applying the wrong jurisdiction’s law
• Ignoring procedural requirements
• Assuming facts that are not legally supportable

In litigation and high-stakes disputes, “mostly right” can be far worse than obviously wrong. Small errors compound. Strategy built on faulty assumptions often collapses at the worst possible moment.

The Lawyer’s Role Has Not Changed—It Has Become More Important

As AI becomes more accessible, experienced lawyers play a more critical role, not a lesser one.

Our role is to:

• Filter noise from relevance
• Identify risk before it becomes exposure
• Apply judgement, strategy, and discretion
• Protect clients from unintended consequences

Technology can support that work. It cannot replace it.

How We View AI at Our Firm

We view AI the same way we view any tool:

• Useful when properly applied
• Dangerous when misunderstood
• Never a substitute for professional responsibility
• Always verified

We welcome informed clients. We also believe clients deserve advice grounded in law, experience, and accountability—not algorithms.

The Bottom Line

AI may help you understand the landscape. An experienced lawyer helps you navigate it. When your business, assets, reputation, or future are at stake, judgment matters more than speed, and experience still wins.

With offices in Albany, Buffalo, Rochester, and New York City, we can help you across New York State.

To learn more about these topics, check out our Legalities & Realities® Podcast and blog posts.

You may learn more about us and how we operate by visiting these pages: About Us and What Sets Us Apart.

This blog post is for informational purposes only and does not constitute legal advice. For specific legal counsel, please contact our office directly.

Every year, divorce filings rise sharply in January and February. For professionals, executives, and business owners, the reasons are as strategic as they are personal.

Understanding why this happens matters. Timing can materially affect outcomes involving income, business equity, valuation dates, tax treatment, parenting arrangements, and long-term financial security.

1. The Holiday Season Creates Pressure, Not Resolution

For many households, the final quarter of the year is not a time of clarity—it is a time of containment.

Professionals, executives, and business owners often enter the holidays already managing significant stress:

• Year-end financial obligations and bonuses
• Business performance reviews and planning cycles
• Travel, family expectations, and compressed schedules

Rather than resolving marital strain, the holidays frequently intensify existing fault lines. Expectations of togetherness collide with unresolved issues, and the emotional and financial costs become harder to ignore.

Yet many people deliberately postpone decisions during this period.

2. December is a Planning Month, Not a Filing Month

What we consistently see is not impulsive decision-making, but quiet preparation.

December is often spent:

• Gathering financial information
• Assessing income streams, bonuses, and equity interests
• Thinking through business exposure and asset protection
• Considering the impact on children, reputation, and professional standing

For many of our clients, divorce is not an emotional event alone—it is a strategic inflection point. December becomes a time to understand options before acting.

3. The New Year Brings Psychological and Financial Clarity

January represents a reset.The holidays pass. Business cycles restart. Financial numbers crystallize. The emotional noise recedes. What remains is a clearer view of reality—and a renewed willingness to act.

For many, the question becomes less about whether change is necessary and more about how to proceed intelligently.

This is why filings rise sharply in January and February. Decisions that were deferred during the holidays are finally executed.

4. Timing Matters More When Assets Are Complex

For individuals with closely held businesses, partnership interests or equity compensation, professional practices, or variable income, bonuses, or carried interests, the timing of a divorce filing can materially affect:

• Valuation dates
• Cash-flow analysis
• Support calculations
• Tax exposure
• Negotiation leverage

January filings are often intentional—not accidental—because they align with financial clarity and strategic positioning.

5. A Familiar Pattern for Experienced Lawyers. A Rare Experience for Clients.

For those of us who practice in this area, the seasonal rhythm is well known.For those living it, it is often disorienting, private, and deeply consequential.

That is why early, discreet consultation—before filings spike—can be very important. The goal is not escalation. It is informed decision-making, risk management, and control over outcomes.

A Final Thought

Divorce is not merely a personal transition. For high-income professionals and business owners, it is a complex financial and legal event that intersects with reputation, enterprise value, and long-term planning.

January and February bring action because December brings reflection.

Handled correctly, timing can be an asset—not a liability.

At The Glennon Law Firm, P.C., we represent professionals, executives, and business owners across New York in divorces involving large and/or complex assets.

With offices in Albany, Buffalo, Rochester, New York City, we can help you across New York State.

You may learn more about the nuances of divorce involving businesses or other assets by visiting these pages:

• High net worth divorce
• Equitable distribution
• Business valuation
• Prenuptial and postnuptial agreements
• Gray Divorce

To learn more about these topics, check out our Legalities & Realities® Podcast and other related blogs:

• Blog Posts:
  • Dividing the Practice: How Professional Businesses Are Handled in a New York Divorce
  • Navigating the Complex Terrain of Business Divorce in New York: A Deep Dive
• Podcast:
  • Dividing Your Business In a Matrimonial Divorce in New York

You may learn more about us and how we operate by visiting these pages: About Us and What Sets Us Apart.

This blog post is for informational purposes only and does not constitute legal advice. For specific legal counsel, please contact our office directly.

“Phantom equity” sounds like a theoretical benefit—something symbolic or soft. In reality, these agreements can lead to very real and very expensive legal disputes. When structured improperly or misunderstood by the parties involved, phantom equity can become the focal point of business divorces, executive litigation, and trust or estate disputes. 

Phantom equity plans, which are often meant to align incentives without giving away actual stock, can become legal landmines if not clearly defined or fairly executed. 

What is Phantom Equity? 

Phantom equity is a contractual promise to give an executive, employee, or partner a financial benefit that mirrors the value of real ownership, without actually granting stock, membership interest, or voting rights. 

Common forms include: 

• Phantom stock, which mimics the value of actual shares but carries no ownership. 
• Stock appreciation rights (SARs), which pay out the increase in company value over time. 
• Synthetic equity, a broader term often used in closely held or private companies where traditional equity structures are complex or undesirable. 

These are often used when: 

• Owners do not want to dilute control. 
• The business is privately held and hard to value. 
• The recipient is a key employee being incentivized with a long-term payout. 

Why it Leads to Litigation 

At their best, phantom-equity arrangements reward performance and align interests. But in practice, they often become the subject of dispute, especially when: 

• A triggering event like a sale, separation, or death occurs. 
• The business experiences rapid growth or valuation shifts. 
• The terms of the plan were unclear or inconsistent with how the parties operated. 
• One party claims they were denied payment, misled about his or her rights, or wrongly removed before vesting. 

Because there is no actual stock to refer to, everything depends on the contract and many of these agreements are drafted loosely or not updated to reflect changes in the business. 

Two Common Scenarios We See 

1. The departing executive 

An executive was promised phantom equity as part of the compensation package. Years later, the executive helps the company grow significantly, then leaves on less-than-ideal terms. When the company is sold, the executive expects a payout, but the company claims the agreement lapsed or that the value is far lower than expected. This often results in litigation over valuation, vesting, and contractual language. 

2. The inherited interest 

A business owner includes phantom equity in a trust or estate plan, intending to benefit a loyal key employee. But after the owner’s death, heirs or fiduciaries dispute the employee’s entitlement—questioning whether it was earned, vested, or properly documented. The result is often a trust or estate litigation tied to an executive compensation issue. 

Key Legal Issues in Phantom Equity Disputes 

• Valuation: How is the payout calculated? At what time and by whom? 
• Vesting: Did the recipient meet the conditions required to earn the benefit? 
• Termination language: Does the plan allow forfeiture if the relationship ends? 
• Change in control clauses: Is a payout triggered upon sale, merger, or restructuring? 
• Tax treatment: Are the parties aligned on how the payout is treated for tax purposes? 

Because phantom equity does not involve actual ownership, every detail must be defined in writing. And if it is not, the court will be asked to interpret vague or conflicting terms, often with significant money at stake. 

Best Practices to Avoid Litigation 

If you are offering or receiving phantom equity, here are tips to help protect your position: 

For Business Owners: 

• Clearly define valuation methods and payout timing. 
• Include vesting schedules and termination provisions that reflect your business goals. 
• Review the plan annually, especially if your company is growing or changing rapidly. 
• Ensure consistency between agreements, emails, and oral statements to avoid misunderstandings. 

For Executives: 

• Get independent legal advice before signing a phantom-equity agreement. 
• Ask how your payout will be calculated and under what circumstances it may be lost. 
• Understand the vesting timeline, change-in-control provisions, and tax implications. 
• Do not rely solely on verbal assurances—insist on clear documentation. 

Conclusion 

Phantom equity may be “synthetic,” but the legal and financial consequences are very real. These agreements are not window dressing. They are enforceable contracts that can fuel serious disputes if not handled carefully. 

At The Glennon Law Firm, P.C., we represent business owners, executives, and fiduciaries in high-value litigation involving phantom equity, executive compensation, and business ownership. If you are facing a conflict over a phantom-equity agreement—or want to avoid one—schedule a confidential consultation with our litigation team today. 

With offices in Albany, Buffalo, Rochester, New York City, we can help you across New York State.  

To learn more about these topics, check out our Legalities & Realities® Podcast and other related blog posts:  

• Blog posts:
  • Understanding Business Divorce
  • Navigating the Complex World of Fiduciary Duties and Retaliation Protections: Essential Insights for Professionals and Executive
  • Legalities & Realities® Podcast: Business Divorce: Can You End Your LLC Business When Owners Don’t Agree?

You may learn more about us and how we operate by visiting these pages: About Us and What Sets Us Apart. 

This blog post is for informational purposes only and does not constitute legal advice. For specific legal counsel, please contact our office directly. 

When disputes arise among business partners, co-owners, board members, or operators, litigation often follows. Whether it is a breach of fiduciary duty claim, a misuse of company assets, or a deadlock among members or shareholders, these cases can quickly become high-stakes battles.  

One of the most overlooked—and contested—questions in these disputes is: Who pays the legal bills? And more specifically, can company money be used to pay them? 

Here are some guidelines if you own or operate a corporation, limited liability company (LLC), or partnership, and you are involved in a dispute—whether you are the one bringing the claim or defending it. 

What Types of Lawsuits Are Involved? 

These issues often arise in: 

• Derivative actions brought by minority owners claiming the controlling parties harmed or harming the business 
• Internal disputes where Members or shareholders are suing each other over control, access to financials, or diversion of funds 
• Claims of mismanagement, fraud, or breach of fiduciary duty 

Who Might Use Company Funds in a Lawsuit? 

In most cases, the parties seeking to use business funds for legal costs fall into two categories: 

• Owners or executives initiating a lawsuit—typically claiming they are doing so on behalf of the company to protect its interests (a derivative action) 
• Owners or Managers defending themselves against claims of wrongdoing (e.g., a managing Member accused of misusing funds) 

Why Is This Important? 

The misuse of business funds to pay for personal legal defense is not only legally risky, but it can also trigger additional claims. In many cases, the very act of using company funds to pay for legal defense inappropriately has become a central issue in the litigation itself, leading to orders to repay the business, claw back demands, or even fiduciary duty breach findings. 

How Does the Business Entity Type Affect the Issue? 

These rules apply across all types of businesses, whether it is: 

• A corporation with shareholders and a board of directors, 
• An LLC with managing Members, or 
• A partnership where general partners hold decision-making power. 

However, it is important to note that the entity’s legal form matters. For example: 

• Corporations often have bylaws or statutory provisions that allow (or limit) indemnification. 
• LLCs and partnerships rely more heavily on their operating or partnership agreements. 
• Some entities, like condominium associations, may be unincorporated and fall completely outside corporate indemnification rules. 

So, When Is It Permitted to Use Business Funds for Legal Fees? 

Only under very limited circumstances.  

Here is how it generally breaks down: 

• If the governing documents are silent, the general rule is no reimbursement or advancement of legal fees unless the court finds it equitable and justified under the circumstances. 
• If the lawsuit is in the company’s name, and the company benefits from the outcome, courts may allow the company to reimburse the plaintiff’s legal fees—but only after the case is successful and has created a benefit for the business. 
• If a company officer is defending a lawsuit and the company’s bylaws, operating agreement, or partnership agreement explicitly provide for indemnification, that officer may be entitled to use company funds—again, typically only if they acted in good faith and were ultimately successful. 

How Should You Protect Yourself or Your Business? 

1. Review your governing documents. 
2. Make sure your bylaws, operating agreements, or partnership agreements clearly address who may be indemnified, under what circumstances, and whether fees can be advanced during litigation. 
3. Act in good faith. 
4. Even if indemnification is available, it usually requires a showing that you acted honestly and in the best interests of the business. 
5. Do not assume reimbursement. 
6. If you are bringing a derivative action or defending one, do not expect legal fees to be covered unless the court specifically orders it or the governing documents provide for it. 
7. Consult experienced counsel early. 
8. These are high-stakes decisions with real consequences. The right legal strategy, and understanding what your business can and cannot pay for, can make all the difference. 

Final Thought 

Using company funds to pay legal fees in business disputes is not as simple as cutting a check from the business account. The rules are technical, the consequences are serious, and the optics can be damaging. If you are in a dispute involving your business or co-owners, make sure you understand where the law draws the line—and stay on the right side of it. 

If you are facing a partnership dispute, ownership battle, or derivative claim, our litigation team helps high-stakes clients protect what they have built. Reach out to schedule a confidential consultation.  

With offices in Albany, Buffalo, Rochester, New York City, we can help you across New York State.

To learn more about these topics, check out our Legalities & Realities® Podcast and other related blog posts:  

• Blog posts:
  • Navigating Business Disputes: Understanding New York's Uniform Commercial Code (UCC)
  • Can a Corporation or LLC Sue or Be Sued in New York Courts? What Business Owners Need to Know

• Legalities & Realities® Podcast:
  • Business Divorce: Can You End Your LLC Business When Owners Don’t Agree?

You may learn more about us and how we operate by visiting these pages: About Us and What Sets Us Apart.

This blog post is for informational purposes only and does not constitute legal advice. For specific legal counsel, please contact our office directly.