Thoughtful planning and preparation for welcoming new spouses Into the Business Family
Welcoming a new spouse into a business owning family is a critical but often over looked aspect of Family Business continuity. For the Family Business to survive and build a strong next generation, we need spouses. However, with marriage also comes the fear of divorce, remarriage, stepparents, stepchildren, different values systems, changes to family traditions, and sometimes, the perception of a threat to the business itself. These fears and stereotypes can often effect how we engage with spouses and potential spouses early on in their relationships with our family member.
If a family is committed to the longevity of their family enterprise, thinking carefully about the common challenges of integrating spouses into the family business system and establishing plans and processes for our welcoming of spouses to the family can go a long way to creating productive relationships with married-in family members, regardless of the long-term outcome of the marriage.
Creating a Plan
Planning for how we will integrate spouses in a family business, ideally, should start long before potential spouses are even in the picture. Having these conversations before there are specific people and personalities assigned to them can de-personalize the conversation and help a family focus on creating a plan that is based on their values and principles rather than a reaction to a specific potential spouses’ personality or situation. We would recommend that any spousal integration plan attend to a few specific issues:
How will spouses be treated in relation to ownership?
Will spouses be able to work for the family enterprise?
What role will spouses play in family meetings?
Will spouses play a part in Family Philanthropy?
How will we educate a new spouse and make them feel welcome and connected to the family?
How will spouses be treated in relation to ownership?
A starting point for discussion within in the blood line family is – can a spouse own stock? The emotions that often drive this conversation are based on the potential impact that this spouse could have on the family business in the event of a divorce. For this reason, many families enlist strategies to keep ownership within the bloodline of the family.
Protecting Family Ownership
Stock Restriction/Buy-sell Agreement – The most basic way of protecting ownership in a family business is to have a Stock Restriction Agreement, which limits the individuals that can own stock to the descendants of the founder of the company. This agreement spells out the terms governing the ownership and sale of company stock, when a shareholder must sell it, and at what price, and it also prevents the transfer of stock to an outsider, ex-spouse. Also called a stock restriction agreement, this covers a broader range of circumstances regarding the transfer of stock than a prenuptial agreement does. This agreement will assure that a spouse can never own stock, but it does not necessarily prevent that spouse from having a claim to a portion of the financial value of that stock in the event of a divorce.
Trusts – Putting a family member’s stock in trust can often provide protection for that stock from the claims of divorcing spouses. Because stock held in trust is owned by the trust and not the family member, in many states the stock can be protected against claims in a divorce. You should consult your estate planning attorney to understand how this applies to your specific situation.
Prenuptial agreements - Some business families make it a policy to insist that before a family member marries, the couple must sign a prenuptial agreement. A well written prenuptial is a negotiated agreement between the couple about how they will divide their assets in the event of a divorce. Business owning families often make it a policy that any family prenuptial agreement includes a clause protecting the family business stock in the event of a divorce. In order to be enforceable, the agreement has to be entered into voluntarily and should be thoroughly understood by the two people getting married and their families.
In order to be enforceable a prenuptial agreement;
Must be in writing, signed, and witnessed
Both parties must provide full disclosure of all assets and liabilities
There can be no evidence of duress, coercion, or undue influence
Provisions of the agreement must be legally permissible
Each party must have independent legal representation
In order to ensure coverage of all critical business and financial issues, you may also want to include your accountants, financial planners, and tax experts in the prenuptial process.
Will spouses be able to work for the family business?
Whether you are a family member or a spouse, having clear expectations about how and when you can work in the family business can provide for much clearer communication and a less emotional discussion about the topic. The basic question is “Are spouses allowed to work for the business?”. To answer this question, the family must think not just about their fears about conflict and tensions, but also that potential spouses may have important skill sets that could benefit the family business. Spouses are often more objective in family discussions and can manage and influence the emotions of their spouses. If a family does choose to tap into the talents of spouses – they should plan for and anticipate what would happen to the spouses’ employment in the event of a divorce.
Can spouses participate in Family Meetings?
Family meetings are the place where the family cultivates the sense of unity, values, and vision that will sustain the family business for future generations. Spouses can plan an integral role in living and teaching the family values and vision to future generations. Therefore, we feel that spouses should be a part of family meetings. The reality is that spouses will hear about what happens in the family meetings second hand in most cases. We feel that it is better that they have the ability to participate in the family meetings and hear the information first hand.
Can spouses participate in Family Philanthropy?
Family Philanthropy is an expression of the values and compassion of the family. Engaging the spouses in the philanthropic endeavors of the family can not only make them feel more a part of the family, it can teach them more about the core values of the family business.
Welcoming new spouses – Taking care of the relationship
Marrying into a family of substance, profile and wealth can be an overwhelming experience. Taking care of the relationship throughout the process is important. Thinking beyond just a pre-nup and expanding the conversation to how can we help this new spouse feel welcome, understand the culture and values of the family, and get to know the other family members can make any of the legal or financial discussions feel less intimidating.
Start early – the most common mistake that we see is that families wait until the last minute to start having some of these conversations. Bringing them up at the last minute not only increases stress on the couple, it may cause lingering resentments that can last a long time. Starting early can allow for questions to be answered over time and not in a rush.
Teach spouses about the business and its history – it can be helpful for spouses to understand the importance of the family business beyond just the financial rewards. When spouses understand the values and what the business means not just for the family, but also for the employees and the community, they become invested in its’ success and are less likely to act in ways that would compromise the business. Don’t assume that they know about the business – regardless of how well known the business is.
Share Family Stories – Family stories illustrate the family’s beliefs and values in action. It also can help spouses to know individual family members at a deeper level.
Don’t put spouses in the middle – Asking spouses to choose sides between parent and child or between siblings will sow the seeds of division. Keep family conflicts direct and don’t try to put spouses in the middle.
Have spouses share their experiences – Often, having a spouse who married in earlier share their experiences can reduce anxiety for the new spouse.
Welcoming spouses to the family business represents a big change in the system, but if we have a well thought out process and expectations are clear, we can set the stage for closer more productive relationships both in the family and in the business.
