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Can New Relatives Threaten Your Business?
January 8, 2007
Dear Suzanna: My brother “Darrell” and I co-own a profitable construction firm that has been valued at approximately $8 million. Darrell is getting married soon and I suspect his soon-to-be-wife is just a gold digger. When they get married, will she have any claim on the business? What if they get divorced? What should I be doing to protect myself? -Nervous in Nebraska
Dear Nervous:
Congratulations on your swell new sister-in-law!I bet that family holidays will be a joy from now on.
As you suspect, a some legal action is called for before the ceremony. A little brother-to-brother talk and an easily drafted and funded Partnership Agreement could save you and Darrell a headache down the road.
Here’s the risk: Do you want to end up with the future bride as a business partner? If your brother dies and he has not stipulated transfer of his ownership in the company to you, it will go to his estate, which will mostly likely be his wife.If she isn’t interested in owning it, or needs the money, you may have to buy her out.
What’s the solution? You and your brother should immediately create a formal partnership agreement and arranging funding for any potential buyout situation. A partnership agreement is a fairly straightforward document that spells out in detail in advance what will happen to the ownership of the business in the event of death, disability, or divorce or exit from the partnership of any of the owners of the enterprise. The first step is to obtain a legitimate valuation and then you can determine if and how you would buy each other out, and at what price. Most companies use buy-out insurance for just this purpose as it is cheaper and more convenient than funding the buyout with cash, liquidating part of the business to raise money, or finding outside buyers for a closely held business.
Depending on where you live, the legal fees to draft such a document could range from $500 to several thousand dollars.This will protect your brother as well, which should make his future bride feel secure.
And while you’re at the lawyer’s office, why not gently suggest a pre-nuptual agreement to Darrell as well?
Suzanna de Baca is President of Private Capital Solutions Group, a financial and investment firm in Des Moines, Iowa. She is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 7 Hanover Square, New York, NY 10004, (888) 600-4667. Securities products/services and advisory services are offered through PAS, a registered broker/dealer and investment advisor. Private Capital Solutions Group is not an affiliate or subsidiary of PAS.
PAS is a member NASD, SIPC.
Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.
Posted by Suzanna de Baca on January 8, 2007 | Comments (0)
