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posted: 7/17/2019 1:00 AM

Running the "blended" family business

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  • SUSAN DAWSON

    SUSAN DAWSON

 

Running the family business can be difficult.

Not only do you have to navigate the standard complications of dealing with partners and employees -- but that partner may be your dad and the employee is your cousin.

Trying to win an argument with your dad about why a new technology is needed or that the company should branch out in a new direction may bring along years of old hurts and experiences -- has your dad gotten over you quitting that t-ball team back when you were 6 yet?

The definition of "family" today is even more complicated. The American Psychological Association puts the current rate of divorce at 40 to 50% of all marriages.

With so many marriages ending in divorce, and many of those individuals remarrying and either starting families with the new spouse or becoming a step-parent through the marriage -- family businesses frequently involves blended families.

Blended families are usually made up of parents who have remarried and include children (or even grandchildren) from different marriages -- mom and dad could own the business together, they each remarry and new spouses have children from their first marriages, and so on. Throw a business into the mix and you have a situation where the family owns and runs a business that includes different business partners and family members.

Let's take this example. Mom owns a business, you (her daughter) have been working in the business for years and hope to take it over one day.

Mom and dad divorce. A few years later mom remarries and suddenly you have two step-siblings. Does mom's will leave the business to her new husband when she dies? If so, when mom dies the business becomes the stepdad's business -- and now what does his will say? Does he leave all his assets to his natural children? Say goodbye to the business then. Or does it divide the assets between all three of you? Suddenly you have two business partners you might not get along with or may have no experience with the business.

What to do? This is where careful planning comes into play -- and. yes, this will involve difficult decisions and discussions.

Be upfront about what you want. If you are mom, let the new spouse know that you want to leave the business to your daughter.

There are other assets that can go to the stepchildren to try to even things out (or maybe you aren't concerned about that). If two siblings are running a family business they inherited from dad, talk about what happens if one of you gets divorced and remarries.

What does it mean to you to have a "family" business? Does that include step relations?

If the plan is to bring the blended family into ownership together, you need to consider an ownership agreement (Shareholder or Operating Agreement depending on your business structure).

These agreements can set out how you make decisions together. Does majority vote rule or a higher percentage? Are there things you can do without checking in with the other owners (e.g. ordering office supplies) but other things that require a vote (e.g. increasing your credit line)?

What happens to these owners when they die or become disabled and can't work?

Do they get to leave their shares to their kids (which may lead to further blending)? Setting guidelines for how you will work together can ease a lot of possible conflict down the road.

Is the business a marital asset? A pre-nuptial or post-nuptial agreement may be needed to keep the ownership interest out of a divorce contest.

Drafting proper wills, trusts and the like is also important.

Even if you aren't running a business with a spouse or family member, these agreements may be needed. Think about it -- do you want to suddenly be partners with your business partner's wife?

No matter the situation, advance planning -- making those difficult decisions and having those uncomfortable discussions -- is the only way to reduce the risk of the business (or even the family itself) falling apart in the future.

• Susan Dawson is a partner at the Waltz, Palmer & Dawson, LLC law firm in Rolling Meadows. Susan's practice focuses on representing businesses and business owners. Together with her partners she frequently counsel's family businesses and owners on these topics including running a blended family business, succession planning for the family business and addressing conflict among family business owners.