Ah, the good old fashion family business.

A family business is truly a great source of income to estate litigators.

Why?

Because of the natural insecurities, fears, and anxieties that children working in a family business will have when the success of that business is largely the result of an enterprising parent.

We are getting ahead of ourselves, a bit.  Let’s start at the beginning:

 

A family business…. It seems like a good idea, right?   Think about it, what could be more harmonious and happy then family members who get to work together, see each other daily, and work in a business in which that they can truly feel… at home.

Now, all family businesses are not built the same.  But, generally, a family business is usually started by an enterprising parent(s), who built the business up from scratch with blood, sweat, and tears.  Many times, there is an immigrant story at work here…

The family grows together with the business.  When a child is 16, you can often see them helping out at the business after school or during summer breaks.  As each child matures, he or she is offered a job in the business.  This is a win-win for everyone.  The enterprising parent gets to work and spend time with the kids, and teach them the business which hopefully sustain them and their children for generations.

The children benefit because they get a secure job, and a guaranteed income stream.  They don’t have to endure the anxiety and panic of looking for a job, or risking their savings trying to create a new business of their own.   After all, the family business is successful, and so long as it is being run by enterprising parent, then all the kids really need to do is to hold on to the parent’s coattails and not drastically under-perform.

The bottom line is that the kids get a “cush job” for which they are likely to be overpaid, with little risk of unemployment.   They know it, the parent knows it, and all of the other employees know it.

However, this situation brings a whole package of problems  when the kids see or perceive that their gravy train is coming to an end.

For starters, the kids in the family business enjoy a nice lifestyle without having to do a lot of work (or at least the same work expected of their peers). The problem is, however, that each kid knows that their lifestyle is based on a house of cards. They know that they did not earn their privileges and positions. Instead, they are fully aware that their nice lifestyle is largely the result of riding Dad or Mom’s coattails.

This means that family members working in a family business, which is largely the product and success of a parent, can get very paranoid with each other when they see the enterprising parent start to “lose it” a little.  Trust me, when kids in a family business see the enterprising parent start to slip, the kids will start circling each other like sharks in the water being stirred with chum.

Because everyone knows that if the parent dies, or gets too old, the business may suffer or fail because it is all being propped up by the parent.  And, there goes the gravy train, with little realistic expectation of catching another one…

To complicate matters further…. by the time the enterprising parent gets old, there might be an extensive investment or real estate portfolio which is generating even more income than the business.   Therefore, the family issues are not just about the continuity of the business, but of the investment portfolio as well.

So, the battleground is set.  Each of the kids are ready to tear each other apart in order to sustain themselves and their lifestyles.   To use a nursery rhyme parable, each of them are willing to kill the golden goose just to horde enough golden eggs.

Unfortunately, all types of families can be victimized by this.  It makes no difference if you have a little mom and pop shop on the corner, or are a pillar of society.  All too often you hear of families, who during the parent’s life were among the most tight and close-nit families around, completely fall apart and break into vexatious litigation with each other over the family business.

Why?  Largely because of the insecurities, panics, and power struggles described in this blog.  The kids are freaked out about the train coming to an end.  And, can you blame them?  They have been sheltered by the business for their whole adult lives, and at this point in their lives, they may not be willing or able to generate that same success on their own.

So, under these scenarios, a family business can be a real family death trap if families choose to give into fear, distrust, anxiety, panic, and cannibalize the business and each other.

Therefore, if you are the enterprising parent, make sure that you have a plan in place to stop this from happening.  Put it in place sooner rather than later.  Have a solid succession plan.  Share it with everyone.  Don’t make promises to certain kids, and not include the others.   If you need to make amendments to your plans, do them properly and disclose them to all.  Rely on your attorney to help you, and get the kids their own attorneys to help them.  Develop your succession plan with the kids’ input and consent.  Don’t just assume the kids can figure out all of this stuff later.  They won’t.

If you are a child working with your siblings in a family business, ask yourself, at the end of the day is it worth never talking to my brother or sister ever again because of a business fall out?  Because, many times, severed relationships are the cost of these fights.  Be aware of the panic and anxiety that is shared between yourself and your siblings.  Also, remind yourself of the fact that the gravy train does not have to come to an end.  Get all of the kids together for a massive and detailed family/business meeting.  Don’t be afraid to compromise your ego for a continuing paycheck. Try to find solutions that work for everyone. Some family members might want to sell the business, other might want to continue to manage it.   Therefore, from the start, make sure to have all the resources at your disposal to make these meetings successful from everyone’s standpoint. If there are tensions between yourselves, bring in a mediator or other third-party professional to help resolve your disputes.

Just know that there is a tremendous amount of litigation surrounding the succession of family businesses. Take the steps today to ensure that your family business will continue to operate smoothly and survive the passing of an enterprise parent.  Otherwise, you will soon be forced to confront the ugly truth, and that is- inheritance is poison.