Not wanting to hurt feelings
Dear Corporate Shrink,
My wife and I own a business with over six million in annual sales. My oldest son is getting married in about a year. He works for us but owns no part of the business. The plan is for all our kids to own shares in the company. Our attorney is suggesting we draw up a prenuptial. It feels awkward. Is a prenuptial necessary?
Dear Not wanting to hurt feelings,
Families who own businesses have a very difficult time dealing with the whole area of succession planning. The specific subject of prenuptials is especially thorny and most family businesses simply avoid it. I recommend that as the family business leader, you tackle this head on.
The choice is between raising an issue that may cause family disruption now, or avoid the issue and risk a future business disruption. It is best if the family business has a standing prenuptial policy that applies to any family member who is or would become a shareholder. As is often the case, you are thinking of introducing the subject at the worst time. A prenuptial deals with the possibility of divorce. It is emotionally jarring when it comes at a time when the family focus is on wedding plans and the couple is full of joy and optimism.
If the family has a dream for the family business that they share, it will make more sense to discuss ways, such as prenuptials, to protect the legacy for future generations. The goal is to protect family assets while including the future marital relationship into the fold. The business family also needs to be consistent with a message that in-laws who want to become part of the family business will be evaluated the same way as blood relatives. This again makes sense if the central mission is to manage and preserve the family business successfully.
A written prenuptial policy can be created that deals with all the particulars, including circumstances surrounding death and divorce. It can include language regarding the adequate provision of the surviving spouse. A prenuptial policy can be written so that the prospective spouse has no right to any stock or limited rights. For instance, the spouse can own shares but no voting power. The policy may state that any in-law can inherit shares or receive them through divorce but they must be sold back to the family. There can be other arrangements. The family leaders can arrive at a position they feel is fair and makes sense for the family and the business. The lawyers can then formalize the family’s wishes into legal language.
If you are going to introduce the subject, it is best to do it sooner rather than later. However, you have more than the issue of a prenuptial to deal with. You need to have a vision for the business that other family members can share in. You need to work on succession planning and ownership issues. Your son sounds interested in the business but owns no shares. Has the subject of his sharing in ownership been discussed? This needs to precede talk of prenuptials. What about your other children? Your son’s impending marriage seems to be serving as a catalyst to contemplate these bigger questions. Work with your lawyer and other advisors to create fair, business-wise, and harmonious solutions that safeguard the future of the business and your family.