Personal Finance

Conundrum: How to split up proceeds of the family business

The dilemma: My husband and I own a small business, which we took over from my father almost 20 years ago. After our son graduated college, he joined us and has helped us grow the business threefold over the last 6 years, bringing us into this century and giving us more cashflow. Our daughter, three years older, has never shown an interest in coming in, even though we've encouraged her to do so. She's an artist, not a businesswoman, and we love her for it. Obviously we're helping support her by giving her a "salary" and covering her on our group health plan and pension.

Besides our home, which has no mortgage, our pension which has almost $500,000 in it so far, plus our our boat, art, jewelry. The value of our business is by far our most valuable asset. I feel since my son has made it so much bigger, he has earned a part. Although we don't want to give control to him now, we expect him to take over one day.

My husband and I are discussing new wills and are on different playing fields. My husband feels strongly that everything we have gets split between the two kids when we die, including the business. He believes giving our son an opportunity to make a good living is enough, and without us, where would he be?

I don't agree. “Brett” has worked his tail off to grow the business, and deserves more. We cannot burden him one day with half a business with a built in salary to his sister, who is so far removed. That’s not fair! We've even had to make a pact to not talk business when the family gathers as she thinks it's boring and leaves her out.

Neither child is married, though our son has a lovely fiancé.

This is a battle and a stalemate. We don’t want to go to the lawyer until we agree. I'm steaming. He's drawn the line in the sand and won't budge.

Your thoughts please.

Meg’s solution: I can understand both sides of your thinking, but honestly, I have to agree with you. Fair is fair.

First of all, though, why do you “obviously” have to support her? With artists, this may be a lifetime commitment, and that is not one you can pass on to your son. Besides, he has to actually work for his income and she doesn’t? hmmmm.

I also must ask if you recognize that paying a salary and benefits to someone who doesn’t work there is flirting with disaster. Is your CPA on board with this? Does he/she know? If you want to support her, and that’s for another column, then please do so by gifting to her with your after-tax dollars or finding another legal way to help her out. The business cannot be a front for your largess. This one is on you personally.

Your son needs to feel the weight of what he’s accomplished, besides salary and bonuses, and you both need an exit strategy. Sounds like you need each other. Why not build a plan, with your attorney, to gift non-voting shares to him along the way, and set up an air tight buy/sell agreement for him to take ownership when you cannot work or aren’t on this earth? Here’s where you can “even the score”.

You should evaluate what the business is worth with a good business appraiser who may be able to show you what this growth has meant to your bottom line. When you retire, “Brett” can buy you out by continuing to pay you for a determined number of years. Upon your demise, a survivorship life insurance policy, which you would buy now and keep in a trust, can pay out enough proceeds for you to compensate your daughter for the half of the business your husband thinks she’s owed. With the extra income you’re earning, you can afford it. The rest of your estate gets split 50/50. Works for me.

The same business attorney is probably capable of doing your estate plan, so you can wrap it all in one, and problem solved. Fairly. Hope this helps.

Got a dilemma? Email Meg Green, CFP, is a wealth manager with offices in Aventura. Her Money Dilemmas column runs monthly in The Miami Herald.