Saving the Golden Goose: Part I – How Family Run Businesses can Survive and Thrive after Divorce
One of the common fears of clients who own family run businesses is how a divorce will affect the business they have spent their life building. While business owners have control over the work they put into their business and the legacy they are building for their family, they may have little influence over a relationship breakdown. The worry in regards to the effects of this breakdown on a business can cause additional stress above and beyond the heartache associated with restructuring a family.
In many family law matters involving children, the spouses are able to agree to cooperate in order to address the best interests of the children. In many ways, a family business can be used as a similar incentive: spouses can agree to cooperate in order to address the best interests of the family business. While fueling conflict is an almost unavoidable side effect of the court system, a collaborative approach is a very effective method in reducing the impact of separation and divorce on family run businesses. This process seeks to ensure that the business remains viable for both spouses, as well as future generations.
What is Collaborative Practice?
Collaborative Practice Family Law offers an effective alternative to the inherently adversarial court process. Both parties must enter into the process voluntarily, and agree to resolve their issues respectfully. While the court process is oriented based on the legal rights and obligations of both parties, the collaborative process allows both parties to generate options that best suit their family. This allows the family much more self determination in creating an outcome based on their specific needs. Specially training collaborative lawyers work with both parties to guide them through the process, and are available to offer legal advice and support to their clients when appropriate.
Both parties’ lawyers also commit themselves to coming to a mutually agreeable resolution. The parties must agree in advance that should the collaborative process fail, neither party may use their collaborative lawyer to advance their position in court. This creates an environment conducive to negotiation and settlement, outside of court.
The underlying philosophy of the collaborative divorce process is that the parties mutually agree to completely avoid the court process, with the result being a faster, cheaper and more amicable divorce or separation.
A Flexible Alternative to Court
As mentioned above, the collaborative process allows spouses to shape the outcome of their separation and divorce. In contrast, judges in the court system have limited statutory options available them when presented with these disputes. Their analysis is built upon a determination of the legal rights and obligations of the parties under the Family Law Act. Furthermore, family law judges may struggle to understand the time and effort that goes into building and running a business, and the concept that income is not necessarily guaranteed or consistent. Issues such as liquidity of assets, the risks associated with owning a business, and ensuring that funding remains stable are complex, and family judges are not necessarily trained to analyze these concepts. Due to these restrictions, often a court process will result in the sale of business at a significant discount, which ultimately results in a significant loss of family wealth.
Collaborative family law is an option that operates outside of the court system. It allows the spouses much more privacy than a court process does, which a huge additional benefit to those owning family businesses. Issues such as tax planning or corporate share transfers can be done with reduced publicity. Both spouses are able to sit down with one another, and their lawyers, to discuss a solution that is beneficial to both the business and the family unit. Spouses can determine whether or not it is a realistic option to continue to operate the business jointly, or if one should step down. In the latter situation, flexible payment structures can be created to ensure that the business is not destroyed in the wake of one spouse leaving. This fosters the health of the family business, and promotes growth and stability for future income and the building of capital which ultimately supports the family.