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Family business disputes & divorce

/17 Mar 2018
/By admin

Family business disputes can lead to long term effects, some of which you might not appreciate. Consider a hypothetical example of a complex family business conflict at Smith Family Corp., a small corporation where all the shareholders are extended family members and their spouses.

Jim Smith wants to divorce his wife Jane and they have equal shares as 25 percent owners. Jim’s three siblings and their spouses collectively own the other 75 percent. The four siblings are already divided on many issues over a falling out over the distribution of shares to all siblings and their spouses when Jim’s father passed away.

Who wants their ex as their business partner?

It’s divorce time and you are ready to turn the page and start a new chapter in your life. If you work for a family business you may turn the page but have some recurring characters with you, namely your former spouse.

In the case of the Smith family, Jim may go ahead start his new life after divorce as he pleases, but his ex-wife will still own half of their former collective 25 percent. The tension and conflicts Jim may anticipate could come from his former wife and the rest of his siblings and their spouses.

Consider an example where the company bylaws require a two thirds vote on paying quarterly dividends instead of annually. If Jim’s ex-wife wants to make his life uncomfortable she could vote against paying dividends and stop the motion from passing, where previously, other family members routinely relied on Jim and his wife for always voting in favor, making the two thirds vote for quarterly dividends pass.

Creative persuasion and the unattractive offer

The unattractive offer in a family business dispute could become more attractive when people consider the long-term consequences of short term choices. What might seem like a good idea now can turn into a disaster over time.

Considering Jim may be well on his way to everyone being upset with him if his soon to be ex-wife exercises her shareholder rights to make Jim pay for divorcing her, every single day. Jim might consider buying out his wife’s shares of the business in the divorce.

Jim’s wife knows how important it may be for Jim to get her out of the family business and he may be wise to over pay her for the value of her shares. Jim’s other option may be to give his wife all his shares in the business and have her buy him out.

Using an experienced lawyer, like a family attorney, who works well with equally experienced corporate and business counsel is important to everyone in the family and the future of their business.