A Statistics Canada publication revealed that according to the 2011 General Social Survey on Families, approximately five million Canadians had separated or divorced within the last 20 years. About half (49%) of these Canadians ended a common-law relationship, 44% a legal marriage and 7% both a common-law union and a legal marriage.
These statistics prove that divorce is real. You hear about it through various news channels. Your sister shares a story about her friend’s recent separation. You receive a firsthand account of a co-worker’s experience. You witness someone in your community seated alone in a restaurant. Your heart sinks as story after story is revealed. You wonder, “If it can happen to someone else, can it happen in our family?”
It’s not only divorce between couples which affects a family business. Fallouts in relationships between parents, children or siblings can create chaos and confusion. In some situations, the devastating financial damage is permanent resulting in the demise of the business.
Wearing blinders and fooling yourself into believing that “nothing” will happen to your family business is not the best approach. Believing that you get along great as long as Dad’s in charge or as long as your son or daughter have their way is a sure sign that the situation will change when the circumstances change. The events likely to change the circumstances are often sited as the 5 D’s: Death, Disability, Divorce, Disaster, and Disagreements. Filling in the blank for your own situation is helpful in examining the way your business operates today. We get along great as long as _________. What are your underlying conditions or circumstances?
At a 2017 Ag in Motion event, Jolene Brown, Agriculture Professional Speaker and Family Business Consultant, shared her list of The Top Ten Mistakes That Break Up a Family Business.
“Presuming a conversation is a contract” stood out from her list. Jolene clearly emphasized, “If it’s not in writing, it doesn’t exist…” There was a time when someone’s word and a handshake would constitute an agreement. This is no longer the case. An agreement like this cannot be validated. With no written confirmation, there’s no evidence to prove the actual intention of the farm owner.
Jolene Brown made reference to a common message relayed from a farming father to his farming child, “This will all be yours one day!” Because the intentions were not put in writing, this never occurred. The dream of the family farm died when the founder died.
This leads to the next “Top Ten” mistake, “Having no legal and discussed estate plan, management and ownership transfer plan, buy/sell agreement, or an exit plan.”
I believe we know all the importance of having our intentions put into writing but there are “obstacles” that stop us from taking action. One of the biggest obstacles is procrastination which we attribute to our lack of time. We use this excuse rather than dealing with the tough issues. Some “thing” always takes precedence over the important “thing”.
As difficult as divorce is, the aspect I appreciated the most was having an Inter-Spousal Agreement. When my former marriage was going south, my counsellor insisted that we speak to a lawyer about drafting an Inter-Spousal Agreement. The process was like putting in place an insurance clause. The document didn’t suggest the likelihood of a pending divorce but rather implemented leverage “just in case the marriage doesn’t work”. The mutual agreement was the follow-up plan. In fact, this document safeguarded and preserved our relationship when evidence showed our marriage would not survive. Our current property, pension plans, and child responsibilities were written into the Inter-spousal Agreement. When the time came to finalize our divorce two years later, no further discussions were required and no disputes occurred. Everything that was decided earlier made the final step easier. Our Inter-Spousal Agreement avoided hashing over property and child support which would have created additional legal fees. From the time of the initial separation to the finalization of the divorce, the most prominent and disturbing factor was interference from outsiders who suggested how things should be handled. The Inter-Spousal Agreement stopped this.
The valuable lesson is to make decisions when conversations are friendly and the atmosphere is favorable in reaching a mutual consensus on matters of great importance. The written document is a glimpse of what you want to see occur both in the present and future. It’s a reflection of your best intentions for your family and you.
Fear causes us to be overprotective. In specific cases, fear drives us to try and control the outcome, not necessarily in positive ways. Identifying your fears, roping them, dealing with them, and discussing them with family members helps you face your major concerns related to your family business.
Fear should not stop you from signing your name to well-drafted agreements when you have had your “say”. Avoiding the creation of agreements is by far worse than not having one. An agreement, even a prenuptial agreement, proves your willingness to work towards a favorable outcome. It sincerely proves that love and respect trumps greed over family-owned assets. Having Partnership and Unanimous Shareholders’ Agreements are part of a sound business plan to adequately deal with possible situations.
Transfer this information into action. Put your intentions into well-drafted documents with advice from a lawyer as well as input from your accountant. To learn “How to Have Better Communication with Your Farm Lawyer”, click here. Elaine Froese provides a list of questions to ask yourself. Reading, learning, asking questions are about doing the right things to protect your interest, farm property, and family farm business. If specific concerns keep you from having a good night’s sleep, perhaps other family members have the same concerns and difficulties. Put your concerns to rest once and for all.