Family Businesses

  • The family whose economic stability is tied to the family business can face unique challenges when the founding generation owners face a breakdown in their marriage. The intertwining of family ownership, entrepreneurial, management, and operational interests with new generational involvement provides an opportunity to review succession plans, roles, and members on the governance boards. Expressing and reiterating common family values and working together through this difficult transition period helps keep the dream goal of a successful family enterprise on track.

Keeping Family / Work Boundaries

Developing a shared understanding with a spouse and involved family members as to how the business will operate during a separation must be a key objective. By sharing expectations up front,  keeping open clear lines of communication, and demonstrating a willingness to meet difficult discussions with grace and determination family members set the stage for the family business to continue to operate in an efficient manner for the benefit of all concerned.

Resolving Competing Interests

The paradox of managing and operating a family business will continue through the separation and divorce process. Handling the private transition to two households, as well as dedicating resources to support the children’s best interests now and in the future, takes focus and careful planning. If long hours working for the family business resulted in little time for the children in the past, the development of a future parenting arrangement may require sensitive conciliatory efforts and creative scheduling. Using the collaborative approach is ideal in these circumstances.

Maintaining Positive Cash Flow

Appreciating the inherent financial conflicts of interest between family life and workplace obligations, during emotionally sensitive times the allocation of available resources may become a nimble diplomatic mission. Meeting the family’s individual financial needs while in transition may temporarily strain the company’s cash flow. A residential relocation requiring a substantial down payment may occur at the same time the company payroll needs to be met. Marketing launch timelines may happen on the week private school tuition is due. Keeping the business running, and suppliers and customers satisfied takes on a new perspective as the family members adapt to their new futures.

Economic Risks and Considerations  

Given the economic unpredictability of a key family executive negotiating a separation agreement from their spouse, what risks may be incurred by the business and what are the disclosure requirements related to their personal guarantees securing the business operating lines of credit and term loans?

Independent Business Advice

The complex interaction between family, corporate, and tax law in such situations give rise to related issues which must be deftly handled. Conferencing with an independent accountant or business and tax advisor to undertake a cost-benefit analysis as to the viability of the firm without continuity or strength of the first generation key executives or with certain family members moving into different roles. Redefining or making more explicit those roles quells uncertainty and conflict. Participating in peer groups of different industries brings valuable fresh insights to issues common in family businesses. Should family business continue its operations or does it makes more sense to parcel off a division or close a unit. Does the succession plan require critical adjustments?

Family Involvement

Family businesses are not only a critical economic lifeline for a family; they often integrate new spouses, relatives, and blended family members. Each may perform a wide array of valuable responsibilities honouring family values, cherishing family goals and supporting new ventures.

There may be some key decision-makers who are unable to continue working in the family business given their loyalties to both spouses. Considering hiring a professional manager removes the uncertainty and offers discordant family members the opportunity to rebuild trust. Conducting preliminary individual meetings with council and executive members to gauge potential agenda upsets and underlying emotional issues assists to work out the inconsistencies before important decisions are made and impact the direction of the business.

Shareholder Rights and Agreements

There may be a shareholder agreement which requires a divorcing partner to liquidate their interest so the remaining shareholders aren’t partners with a disinterested spouse or a distant non-operating shareholder. Buy-sell clauses may be triggered on separation or divorce. These clauses may provide a right for a new generation shareholder to acquire the shares of the shareholder undergoing a divorce at a discounted price. Is there a competent ready talent pool of enterprising young family members ready and willing to step in?

At this time of possible ownership transition the commitment to the broader enterprise requires the direct participation of well- informed and experienced shareholders. Promoting family unity through shared values and acknowledging different strengths and viewpoints of the younger generation can be viewed as adding value to client services.

Tax Implications of Settlement Proposals

What may be a strategic tax plan for the business may not be seen as compatible with family law principles. Carefully considering how the resolution of a family law issue may impact on the current or future planning for the business can be important for the long-term survival of the family business. Involving the right professional advisors at the right times to provide required advice should be a part of the process.