Business, family mix requires cautious approach

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

Working with family – outside the home – can be just as frustrating as it can be rewarding. On one hand you get to spend more time together. Other the other hand, you have to spend more time together. On one hand, you are working with people you (presumably) trust. On the other hand, if someone breaks that trust, you still have to see her at family celebrations and on holidays.

Here are a few points to consider before mixing business and family, to make this union more likely to succeed.

In deciding to go into business together, be certain you have a meeting of the minds – make sure you agree about how the business will operate, or how the specific business deal will occur. The clearer you can be, the better; this is no time to simply assume that you are on the same page about something or everything. You will not be able to predict or plan for every possible outcome, but it is helpful to talk through some potential scenarios, and to consider how you will manage strife and disagreements in the business relationship.

Avoid letting your personal and professional lives collide – when you work and live with the same people it becomes easy to bring your personal issues into the business relationship and your professional issues into the home. While a complete separation of the two is likely not possible, you may find that some compartmentalization will lead to more peaceful family functions and more productive business meetings.

Fairly distribute the labor and wealth – it is imperative to discuss your roles within the business, your expectations of how the business will operate, and what you intend to do with your revenue.

Do this up front, and do this on an ongoing basis.

Be careful of nepotism – there is nothing wrong with hiring family members; after all, it is a “family” business. But, make sure the hiree brings value to the business or deal. Hiring an unqualified employee simply because he is family is a surefire way to breed resentment among others within the organization and may cause you to lose the good talent that you would rather keep.

Define your organizational chart – especially if the business is small or just starting, roles will certainly overlap. However, some delineation of roles is necessary to make sure things are getting done. And, it is imperative to have a clear hierarchy. Even if your hope is that everyone would have an equal say in the running of the business, to grow the business successfully there must be a mechanism or person with the ability to resolve a stalemate.

It can be very rewarding – both personally and financially – to start and run a business with family. The key is to clearly outline expectations and roles and, above all, manage it just as you would manage a business with no family involvement.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

2023-11-10T13:38:14-05:00June 18th, 2015|Family Business|

In divorce, separation of business not easy

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

When divorcing clients first enter my office they often already know, even if they don’t like it, that their assets will be divided in an equitable typically, equal manner. But, as King Solomon understood, some things just can’t be cut down the middle without utterly destroying them.

In the context of a divorce proceeding, aside from the kids, the most obvious examples of this are the business and the house. That doesn’t mean a fair division is impossible. It just means we do it in a different way.

But, in cases in which the children can go back and forth between households and a house can be put up for sale, a business is “split” differently. Not only is a business an income source, it is also an asset. It might even be a family legacy. Often it represents hopes, dreams and sweat equity, and has enormous emotional value. And, in nearly all cases, it is preposterous to presume it would be simply sold, it would be split, or that the former spouses would simply continue as joint shareholders and be able to successfully manage it together after a divorce.

According to statistics from the U.S. Small Business Administration, far more than 20 million small businesses exist in the United States. Small business owners engage in all sorts of activities, from multilevel marketing sales (such as Mary Kay and The Pampered Chef), to retail sales (at brick-and-mortar stores or via websites like Etsy or Ebay), to franchise ownership, to service firms (doing things like consulting, construction, or design), to manufacturers. Consequently, these issues come up quite frequently.

So what happens to a business in a divorce? In the broadest of terms, one party will usually keep the business. The other will relinquish all claims to future growth and will have no responsibility for future liabilities. The spouse giving up the business will then get half of the marital value of it. Most often, the identity of the retaining party is pretty clear.

Perhaps only one spouse has been actively involved in the startup and management of the business, or maybe it is a family business that has been operating for a few generations. It is only logical that someone who can’t take a decent snapshot or repair a car isn’t going to take on a business focused on providing those services. And it could get really uncomfortable or even downright nasty to remain jointly involved in a business, especially if your ex-spouse’s family is involved too.

The more challenging part is figuring out what amount of money the relinquishing party is entitled to. Sometimes the value of the business – as an asset – is next to nothing, as can be the case in service businesses. In those cases it may be just an income stream that factors into support calculations. Sometimes the value is based largely upon inventory, as in direct sales. Sometimes the value is more difficult to quantify. Very often, an expert will be hired to look at the books, the tax returns, and so on, in order to determine the fair market value; essentially, this expert determines the worth of the marital share of the business on the open market.

Once a fair market value is determined, the next task is resolving how the out spouse is going to get paid. Sometimes the payout is a lump sum, sometimes it is paid out over time with interest. Sometimes it is an offset from other asset, such as equity in the house or a brokerage account, and sometimes it is set off by the taking of more debt.

Of course, in an ideal world – if you are the one retaining the business, that is – there would be planning, thorough bookkeeping and a good prenuptial agreement to help your business weather a stormy divorce. But, barring those, know that businesses can, and most often do, continue even after the marriage ends.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

2023-11-10T13:38:15-05:00December 20th, 2013|Divorce, Family Business, Property Division|
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