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For Estate Planning, Estate Administration And Disputes

It may be a bad idea to divide up a family business equally

On Behalf of | Sep 5, 2020 | Firm News |

There was once a tradition where the oldest son inherited the farm, holdings or business. That kind of thinking has gone by the wayside for the most part, which means that parents typically divide things equally among their children when they draft a will or create a trust. This is fair and can avoid sowing resentment among siblings.

One notable exception to the equal split, however, may be equally dividing a family business.

It is reckless to make assumptions

A business owner may love their business and want it to last as part of their legacy, but they should avoid making assumptions. For example, they may assume:

  • That the family dynamic will remain the same after they die.
  • That each child is equally suited and willing to take over the business.
  • That the kids will work together harmoniously, with family blood protecting against any serious disagreements.

It is more complicated than that

The business owner may not realize or ignores the fact that the siblings have little in common besides a bloodline. Growing up together also can lead to petty grievances and resentments harbored long after leaving home. These issues can escalate if they find themselves in the pressure cooker of trying to run a business. The dynamic can also sour if a majority continually outvotes a partner.

Picking the right person

Instead of splitting the business and leaving the children to sort it out, it makes more sense to discuss the matter with them and figure out what approach has the best chance for success. Suppose one shows interest and has the aptitude and skills to run it. In that case, it may make sense to divide the entire estate assets based on a fair market value of the business with other assets going to other beneficiaries. If more than one child wants to be involved, it can make sense to outline the business structure in a will or business plan. It can also be a matter of some children staying on as board members or silent partners who are not actively involved in running the company.

Proper planning avoids strife

Too few estate plans consider the details of dividing up one or several companies. It can lead to family strife, resentment, and can destroy or hobble the companies. This result was not the goal of the business owner, but litigation may end up being the only fair way to resolve these disputes, particularly if the business ownership structure creates dissent among family members.