Family businesses can be a messy affair if you don’t plan out all your legal documents properly. There are numerous cases of people having long court arguments over inheritance or having mistresses and step-families demanding rights. In these cases, the only person that really wins is the lawyers and tax collectors.
Fortunately, you can avoid all this with proper planning. Even if you are in perfect health, it is best to have a strategy ready if ever something were to happen. This process can take months to even years, but everyone will benefit from it because it keeps the peace. You can also rest easy knowing that all the work put into your business is not wasted.
One important part of the planning process is having everything written on paper, preferably notarized and in front of a lawyer. Simply saying it is not enough, and it will make legal proceedings a lot easier if it is done on paper.
To make sure that your family and business are protected, consider these two situations and what to do about them.
Businesses come with a lot of risks, and your partner should be aware of it. When marrying someone, they have certain rights and responsibilities. This can be both a good thing and a bad thing. On the positive side, they can get certain assets if you die. However, the debt that you may have taken out during that time can be a point of contention.
For this reason, it is advisable to have a prenup or at least discuss it before getting married. Prenups are not only used to make sure that your assets are secure, but they are also done to make sure that your spouse is protected. Contrary to popular belief, prenups are supposed to be fair. Most states will throw it away if they deem it unfair to either party.
Prenups can also establish how much your partner will get in the case of divorce. If joint accounts have been used for the business, you will be able to set the initial worth of your business to prevent conflict and long discussions with the divorce attorney.
This is why it is best to have your business partner sign a prenup as well if they are getting married. If the spouses have contributed to the development of the company, the value of their work can also be determined.
In the same sense, prenups can prevent collectors from chasing your spouse when there is existing debt. Although marriage does not necessarily mean that they share your debt, it can complicate situations later on. These agreements can also guarantee that your spouse can still earn a portion of the business in case you die.
In Terms of Succession
A 2016 study showed that 43 percent of family-owned businesses don’t have succession plans. This can become a serious problem in the future because you might end up with children fighting over who gets what. It is also good business practice to always make sure that you have a plan for untimely events.
“Generally, most family business owners find themselves so involved in the day-to-day operations, they’re not thinking of what’s next for them personally or for their family and how that intersects with the business,” said the managing director of SunTrust Business Transition Advisory Group David Neubert.
Without proper arrangements, your children can end up with long legal proceedings and arguments. Aside from that, there are also the chances that none of your children will want to take over the business and would prefer to pursue their own careers. This can put them in a tight position because one cannot simply be given a business without the knowledge and means to keep it running.
Consulting with a business advisor is one way that you can decide on the succession. Of course, it should also be discussed with the concerned family members. If other members choose to share responsibilities, legal experts advise that you get the terms of their responsibilities and their contributions in writing. This is to prevent other family members from doing unjust practices on the employees.
You may also need to establish the government structure of your family business. Will your success be making major business decisions? To what extent can they make changes?
Most people do not consider what would happen to them during the worst-case scenarios. But as a business owner, you need to look ahead. Make sure that all your terms and assets are secured to avoid any future conflict between you and your family.