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Love may be eternal, but every relationship on this earth is guaranteed to end at some point.
In fact, we are convinced that all marriages end in one of two ways: death or divorce. For business owners, planning for these eventualities can prevent the end of a marriage from causing the end of a business.
Marriage ended by death
The wish of most newlyweds is to live a long and happy life together and then take their last breath while still in love and married to their spouse. Even individuals who are lucky enough to experience this rosy outcome would benefit well by having an estate plan in place that directs the resolution of things after death.
Estate planning typically consists of a will, but various trusts may be incorporated into the plan depending on your needs. An estate plan contains instructions as to how the assets are to be treated (i.e., who gets what) and one or more of her persons who are responsible for carrying out those instructions (i.e. , executor or trustee) is also designated.
For business owners, an important decision they must make is who will receive ownership of the business. Potential beneficiaries could include the owner’s surviving spouse, children or grandchildren, or long-time employees. In general, people are free to structure their estate plans as they wish.
If the person nevertheless has a spouse and does not leave that spouse a sufficient share of the estate, under North Carolina law the surviving spouse must leave the estate to receive that minimum share. You can make a claim. The size of the share depends on the length of the marriage. The percentage starts at her 15% and after 15 years of marriage she increases to 50%. If a business owner wishes to leave ownership to someone other than the surviving spouse, certain planning strategies can be implemented to ensure that the plan is not interrupted by the surviving spouse’s right to claim a share of the estate.
Generally, a person’s interest in his or her business accounts for the majority of the value of the property. If an owner wants to benefit multiple individuals in an estate plan but does not want to split the business, it is often the case that some beneficiaries receive the cash and the business interest is shared by one or more others. Life insurance can be included in the plan so that it is transferred to the beneficiaries. .
If an interest in the business is given to multiple beneficiaries, the owner may choose to make the gift conditional on the beneficiaries entering into a shareholder agreement with terms established by the owner as part of the estate plan. There is a gender. This allows owners to set parameters for how the company is managed and how beneficiaries transfer ownership in the future.
By setting these rules in your estate plan, your beneficiaries won’t have to negotiate terms during the emotional and stressful time of an owner’s death.
After all, there is no one-size-fits-all estate plan. Everyone’s situation is different. Thoughtful estate planning must consider the owner’s goals, stakeholder relationships, and the nature of the business and its operations.
Marriage ending in divorce
Not all marriages last the lifetime of the couple. Sometimes a marriage ends because the couple decides to divorce. When spouses divorce in North Carolina, unless the parties agree otherwise, the court will decide how to divide the couple’s assets in a process called equitable distribution.
The court first classifies the assets as either separate property or marital property. Separate property includes assets owned by one spouse before the marriage and any gifts or inheritances the spouse received during the marriage. Marital property includes all property acquired during the marriage, excluding gifts and inheritances.
Generally, each spouse is entitled to hold their property separately, and marital property is divided starting with the presumption that each spouse is entitled to half of it. Equitable distribution proceedings are often acrimonious and can result in long-running disputes over how property is divided. If a family business is involved, the business may be ordered by a court to refrain from handing over records or financial data or transferring assets.
Certain agreements can help protect businesses from owner divorce. A prenuptial or postnuptial agreement can establish each spouse’s right to property in the event of divorce. For example, a couple may agree that the equity will remain with the owning spouse and that the value of the equity will not be considered when dividing other assets.
A purchase and sale agreement can also help protect your business from divorce. For example, all owners of a business may agree that if any owner divorces, the business will redeem that owner’s interest at a set price. This makes the sale proceeds subject to divorce proceedings, but does not constitute actual ownership of the business. .
As with personal estate planning, there is no silver bullet contract that is best for every business. Rather, plans and related agreements should be tailored to the circumstances of the business and its owners.
conclusion
All marriages end. If a family-owned business is involved, the dissolution of the marriage can derail the business. But owners who have taken the time and effort to consider what will happen to their marriages and their business partners, and who have agreements in place to deal with the consequences, are far more likely to have their businesses survive. .
This is part of our February series “Love, Relationships, and the Law.” Click here for more information.
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© 2024 Ward and Smith, PA For more information regarding the above issues, please contact us below. or .
This article is not intended to provide, and should not be relied upon for, legal advice in any particular situation or factual situation. You should not act on the information contained in this article without obtaining the advice of an attorney.
We are an established legal network with offices in Asheville, Greenville, New Bern, Raleigh, and Wilmington, North Carolina.
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