Saving the Golden Goose: Part III – Privacy, Protection, and Planning
This blog builds upon our previous blogs Saving the Golden Goose: Part I and Part II to discuss the importance of privacy, protection, and planning in managing the effects of separation and divorce on family businesses. One illustration of this arose in a case whereby both spouses owned shares in the family company. As an additional wrinkle, a third business partner was involved and actively expressed concerns about the effect of the separation and divorce on the business.
One spouse actively managed the finances of the business, and the other was less involved. This created an unbalanced feeling for the second spouse, who felt that they were open to being taken advantage of financially. The spouse in active management of the business was incredibly concerned about market changes and the viability of the business going forward into the future. This vulnerability split into discussions around how the business should be properly valued.
The spouses had several adult children who had been supported by the family business in various ways throughout their teenage years and adulthood, either through part time jobs or full time employment. These children had very vocal views on how the couple’s separation should proceed. The children also felt that the family cottage should remain in the possession of the spouse who was in active management of the family business, as it was a retirement plan.
In this matter, a full team approach was utilized to create a creative solution which met the spouse’s needs amidst the “background noise” of the children and the business partner. The family professional was able to mitigate any backlash from the children expressing their feelings about the family business and the cottage, and the financial professionals were able to ensure that the non-managing spouse felt competent enough to actively participate in the financial negotiations.
In order to ensure that the family business was preserved, several options were suggested by the team to the spouses:
- Shares from non-managing spouse be transferred to managing spouse; other family property transferred to non-managing spouse
- Shares from non-managing spouse be transferred as a gift to the children
- Non-managing spouse retains cottage; managing spouse leases family cottage back and covers operating and capital costs with option of re-purchasing in the future
- Non-managing spouse retains the shares for a period of five years during which the managing spouse acts as the voting proxy, after which time the managing spouse has the option of buying back the shares at the current value
Associated issues such as the capital gains liability of each scenario, as well as the valuation dates for transferred property were also taken into account. Notably, these options would not be available in the traditional court context. Perhaps most importantly, the spouses would not have had the “luxury” of being supported by an interdisciplinary team and provided time to process and decide which option made the most sense to themselves, their family, and their business.
The above case examples illustrate the ability of collaborative family law to shape a resolution with the best interests of the family business at the core. The collaborative process emphasizes privacy, protection, and planning. By keeping the matter outside of the courtroom, families can maximize their privacy with respect to the highly personal matter of restructuring their family and business. The collaborative process offers a respectful alternative to the court system for those wishing to ensure that their legacy remains intact for generations to come through estate and succession planning for the business. The business does not need to be destroyed by family restructuring. Minimizing the financial and emotional impact of a separation and divorce on both the family and their business is a tall order, but it can be done with the support of an interdisciplinary team who is specially trained to identify creative solutions with the goal of resolution. This process allows spouses to take back control of your family’s future from impartial third party adjudicators. Divorce and separation may represent both an ending and a beginning. Collaborative practice helps spouses anticipate and include their need to move forward, and makes the future of their business a key priority.
At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at RussellAlexander.com