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February 7, 2012

Plan Ahead Before Jumping Into Co-Ownership Of A Horse

If you're thinking of co-owning a horse with someone, even your best friend, it's best to get everything in writing before you plunk down the cash.

Every good idea is a good idea until it turns out to be a bad idea. In college, my parents wouldn’t allow me to have a car. They believed it would encourage me to stay on campus and study. Having gone to college in the Pacific Northwest, it was only a matter of time before I wanted a car so I could go camping on Mt. Hood, sightseeing in Puget Sound, or snowboarding on Whistler.

So my roommate and I purchased a car together. The car needed some TLC, but it was cheap, we were young and impulsive, and it seemed like a good idea.

Except it turned out to be a very bad idea. It was always out of gas; my roommate came from New York City, so she didn’t have a driver’s license (which I didn’t know about beforehand) so her boyfriend was always borrowing it; she didn’t want to pay for new tires or oil changes arguing that she never drove it; and she didn’t want to pay to get the car’s problems checked out.

In a fitting end to it all, one day the car caught on fire when the engine wouldn’t turn off because of a neglected electrical issue. Our co-ownership of the car literally went up in flames.

Sharing a horse is a lot like sharing a car. Granted, the majority of co-owners are more responsible about taking care of a horse than we were about our car, but disagreements over what veterinary expenses or alternative care costs to incur, which trainer to use, which shows to attend, which owner will show it, when to sell the horse, who is responsible for insurance, board and training expenses, etc. can turn a good idea into a bad idea and sometimes at the expense of the horse’s well being. If one owner isn’t living up to his or her responsibilities, it’s very important to make sure the horse is still receiving the care it needs regardless of what quibbling goes on between owners.

Co-ownership agreements are sometimes lacking because the parties are excited about the new horse and rush into things without thinking details through. Perhaps the proposed co-owners are good friends and believe they’ll be able to work out differences, so there’s no need to have a detailed agreement. Perhaps it’s a trainer and a client who are the co-owners, and because of the client’s trust in the trainer, or because of the trainer’s experience in co-owning horses, neither thinks a detailed agreement is necessary. Whatever the reason, disagreeing on what rights and responsibilities each party has is the No. 1 reason co-ownerships goes south.

The best way to try to keep everyone happy is to make sure everyone knows his or her rights and responsibilities from the outset. For example, if more than one co-owner is a rider, limits on how often each owner can ride or show the horse should be decided beforehand. This will ensure each owner gets a fair share of rides, and they won’t run the risk of overworking the horse until he runs out of gas.

Another issue to consider is if one of the co-owners is not a rider, can that co-owner allow a friend or family member to ride the horse? I certainly didn’t anticipate that I would be sharing the car with my roommate’s boyfriend.

In addition to having a clear co-ownership agreement, it’s always important to have a “stalemate” or “tie-breaker” procedure in place in the event co-owners can’t agree, especially when there are only two owners, and it can’t be settled by a vote. For example, if one co-owner wants to move the horse to another trainer or another barn, but the other co-owner disagrees, must the horse remain where it is or can the co-owner move it?

I had a client who was in this exact situation and stuck in a stalemate when the other co-owner clandestinely moved the horse and refused to disclose its location. The horse was eventually found, but needless to say, the relationship between the owners was ruined. Thus, if a detail isn’t decided upon beforehand, a mechanism to resolve a disagreement or stalemate should be in place, otherwise the situation could potentially get out of hand.

Sometimes, a co-ownership agreement gives one owner more power or even complete authority to make decisions, whether it is because they own a greater percentage of the horse or because that person is a professional or trainer, thus avoiding the stalemate issue.

However, sometimes the non-deciding owner disagrees with the decisions, and this can lead to discord, especially when expenses are being incurred. Furthermore, circumstances may change making it unfair to give the power to one owner, and the co-ownership agreement needs to reflect such changes.

For example, there was a situation where a client started out as a minority co-owner, but through a series of installment payments to the other owner, he became the majority co-owner. The contract gave the right to make all decisions to the other owner, including when to sell the horse, which made sense in the beginning, but not at the end when the client became the majority co-owner. This was certainly an unfair situation that wasn’t thought through beforehand, and the situation became contentious when the client wanted out.

Attorneys can be useful because they can provide clarity and guidance on co-ownership agreements, and they are also trained to spot potential issues that parties may overlook or may not see coming. While an attorney is often seen as an added expense, you can look at the cost as akin to vetting a horse. A veterinarian examines a horse before you buy it in order to ensure the horse is healthy, has no hidden defects,and can serve the purpose for which the client is purchasing it. An attorney strives to ensure that the co-ownership agreement for the horse is fair, has no hidden problems and can serve the purpose for which the client is entering into it.

If you decide not to consult an attorney before entering a co-ownership partnership, be sure there is a clear co-ownership agreement that delineates who is responsible for what, and in case of a disagreement, how such disagreement will be resolved.

All co-ownership agreements are going to be different, but they should all start with a candid conversation between the co-owners to hammer out as many details as possible. Addressing the issues raised in this article is a good place to start. Taking these steps at the outset will help prevent your investment from going up in flames.

Janis J. Chang is a sports and entertainment lawyer licensed in Florida, New York and Texas. She enjoys writing about equine legal issues and would welcome questions via the comments.

 
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