Wednesday’s Video Clip: 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.
As an alternative to a purely rights-based approach, other options can be considered in the collaborative approach, including:
• Family trusts or holding companies as a method of sharing income from the family business
• Tax planning, avoiding the possibility of triggering a Canada Revenue Agency audit
• Considering the formation of a new family trust
• Employment of children in the family business
• Estate, succession, and capacity planning
• Ensuring insurance is in place to cushion the effects of any risks
• Gifting shares or portions of the family business to children or other family members
• Maintaining the privacy of the family business
• Managing the continuation of income streams
• Splitting income among family members
• Delaying equalization or sharing business payments (i.e: if and when the family business sells)
• Preserving the family legacy for generations
• Recognizing and predicting the ebb and flow of the market and business patterns
Unlike the court system, the collaborative process is unique in that it offers the additional benefit of involving neutral professionals.