Founder, M&A Advisor
Sundance Financial
Divorce lawyers routinely handle cases where a privately held business is the largest marital asset, yet the business brokerage engagement process often receives less attention than other aspects of the settlement.
When a business needs to be sold, time pressure from court deadlines, mounting legal fees, and the emotional toll of divorce can make it difficult for clients to carefully evaluate broker engagements. A well-structured brokerage agreement protects both parties and supports a smoother transaction.
This article explains the contract red flags lawyers need to spot and how to protect clients navigating a business sale during divorce.
The Small Business Brokerage Market
33 US states require few formal qualifications to operate a business brokerage. Most other states require only a real estate license. Industry estimates suggest only 3,000-4,000 brokerage firms serve 33 million US businesses. This supply-demand imbalance drives commissions up to 15% on successful sales, far higher than the 5-6% typical in residential real estate (albeit partly due to the higher complexity of business sales).
Deal economics also create interesting market dynamics. A broker working on a $10 million transaction earns significantly more than one handling a $2 million business, which naturally draws experienced professionals toward larger deals. This means business owners in the $500K-$3M range—often the core of divorce-related sales—benefit most from careful broker selection.
For a $2 million business, a 12% commission equals $240,000. Understanding this context helps frame the importance of the engagement terms that follow.
Red Flags in Broker Contracts
When helping your client select a business broker, watch for these engagement terms:
Fees for non-performance
While small retainers are relatively common, standard brokerage agreements charge a success fee only when the business sells. Contracts that require substantial payment even if no transaction closes create severe incentive misalignment.
Red flag: A broker who values a small business at $600,000 and requires a $50,000 “minimum fee” that becomes payable if the seller terminates the engagement or the business fails to sell. That is not a retainer or cost recovery mechanism- it is effectively a guaranteed 8% commission, regardless of outcome.
Automatic renewals without exit rights
Some agreements include long initial terms that automatically renew unless the broker agrees to terminate. A contract with a 12-month initial term that automatically renews for another 12 months creates an effective 24-month exclusive period with no seller exit clause.
Divorce timelines rarely align with business sale timelines. If the divorce settles and circumstances change, your client remains locked in.
Excessive tail periods
Tail provisions protect brokers from circumvention by ensuring they are paid if a buyer they introduced closes after the contract ends. Twelve months is commonly seen in the lower middle market.
Red flag: A contract that combines a 24-month term with a 24-month tail, effectively tying the seller to the broker for four years. If a buyer the broker contacted in month one does not close until year three, the broker still gets paid. This creates long-term financial uncertainty that can complicate settlement negotiations.
What Brokers Actually Deliver
A skilled business broker provides pricing guidance, prepares a Confidential Information Memorandum (CIM), assists in organizing a data room, conducts buyer outreach, and manages the transaction process through closing.
The value differential among brokers typically lies in their ability to negotiate and structure a reasonable transaction, while ensuring that business owners are well informed throughout the process.
How to Protect Your Clients
Lawyers do not need to become M&A specialists to materially improve outcomes for their clients. A few practical steps can reduce risk significantly:
Encourage clients to interview multiple brokers.
Different brokers specialise in different industries and business sizes. In particular, you should distinguish between a broker that specialises in business-sale M&A and one that operates primarily as a real-estate intermediary.
Review engagement terms.
Exclusivity periods, tail lengths, commission rates, and termination rights are negotiable. Having yourself or a trusted person familiar with M&A review the agreement can surface problematic provisions early.
Build relationships with vetted advisors before clients need them.
The worst time to evaluate an M&A advisor is when your client has already decided to sell. Brokers often love engaging with lawyers, so build relationships early.
The Bottom Line
Most business owners spend decades building their business. For many, it represents 70-80% of their net worth. In divorce, that asset often needs to be liquidated under pressure.
As your client’s trusted advisor, your role is not to become an M&A expert. It is to recognise where risks lie, ask the right questions, and spot red flags. A brief review of a broker agreement can protect a meaningful portion of the marital estate.
About Edouard Lyndt
Edouard Lyndt is the founder of Sundance Financial, an M&A advisory firm supporting small business owners through their exit. He has worked with leading investment banks, private equity firms, and consulting companies on deals worth hundreds of millions. Edouard holds an MBA from Harvard Business School, where he graduated as a George F. Baker Scholar.
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