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| Best Practices: Family Business |
Mortal Combat
Kris Frieswick
01/01/2006
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Living Documents
Regardless of how the partnership agreement is crafted,
once it is in place, it must be updated frequently as the company grows or
shrinks. As a firm’s value changes, partners must update the valuation
methodology to reflect any shifts in its asset mix. Funding methods, such as
life insurance policies and special set-aside funds that are intended to pay for
a buy-out of a spouse, must also keep pace with the changing value of the
partnership.
As the case of Frank and David illustrates, as a company
expands, all new agreements and documents must incorporate by reference the
previous agreements, so that there are no surprises if one partner dies.
More often than not, the surviving spouse who litigates does so not because
of malevolence or avarice, but because there is a fundamental disagreement or
misunderstanding over how governing agreements are being interpreted. Partners
must understand that no matter what side of the argument you are on, all parties
are suffering, both emotionally and financially. However, there is simply no way
to avoid court if one of the parties knowingly violates the terms of the
agreements.
The single most important move a business partner can make to
protect the company and the family in the event of death is to ensure that the
business is not the family’s only source of money. Investing in adequate life
insurance policies will lift the financial burden off a bereaved spouse. “To
have a big infusion of liquidity will relieve the pressure of the family to go
to the business with hat in hand,” Rosenbaum says.
If one fails to do so,
surviving partners who do not wish to pay on the agreed terms know full well
that all they need do is drag the legal maneuvering out long enough, and
eventually the spouse will not be able to continue to fight. In time, the spouse
will be forced accept whatever the partnership will offer. “Sometimes, the bad
guy with the money wins,” Olender says.
Kris Frieswick is a Boston-based business and finance writer.
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