Succession planning in a family business context is often complicated. The biggest question is usually “how do we keep the business from falling into the hands of someone we don’t trust?” One way to help answer this question is to make use of Family Law Agreements. Family Law Agreements are contracts that allow parties to set out their rights and responsibilities with respect to their relationship, their respective property, and compensation in the event of separation. They include agreements made at the beginning or during a relationship, such as a cohabitation or marriage agreement, or at the end of a relationship, such as a separation agreement. Family Law Agreements, when used effectively, can help to protect the assets and interests of a family business against claims in the event a family member separates from their spouse. Below are five reasons why you should consider Family Law Agreements as part of your family business succession plan.
- Clarity
Parties usually negotiate with one another in the course of drafting a Family Law Agreement. In doing so, they provide background information around the ownership of assets, their responsibilities for any debts, and their interests in any businesses (including family businesses). Ideally, each party expresses their views without any pressure to reach a final agreement.
This can be particularly helpful, for example, when future spouses are negotiating a marriage agreement. Such an agreement ensures that each party understands the scope of wealth and assets that the other is bringing to the relationship, and which of those interests are meant to be kept separate from the other spouse both during and after the relationship.
- Security
Family Law Agreements typically outline how the parties intend to deal with property, spousal and family support, compensation upon separation, and any other relevant family topics. The breadth of an in-depth agreement can make it so spouses are no longer playing a “guessing game” when deciding how to deal with any issues that arise.
More importantly, having a Family Law Agreement allows parties to negotiate out of certain elements of the property division scheme found in the British Columbia Family Law Act. This means a spouse may be able to protect themself from claims against specific property or business interests that the other spouse would have the right to bring in the absence of a Family Law Agreement.
- Flexibility
Family Law Agreements are flexible. When parties or their lawyers are drafting the agreements, they can tailor them to the parties’ particular needs. For example, a separation agreement can provide for how the couple’s property is to be divided, who is to take on which debt, and how much support will be paid between them (subject to certain considerations for the benefit of any children of the relationship).
Family Law Agreements can also be just as detailed as you need them to be. Perhaps a spouse wants to ensure every piece of property and debt is dealt with prior to entering a marriage agreement, or a spouse may instead prefer an agreement be vague to provide more flexibility for future negotiations. Lawyers can draft the agreement in accordance with a client’s wishes.
- Finality
An especially beneficial aspect of Family Law Agreements is the finality they can provide. Litigation can be expensive, time-consuming, lengthy, and stressful. An ideal Family Law Agreement makes it so that parties can settle any disputes without going to court.
Parties can also include provisions in their agreement that require negotiation, mediation or arbitration in the event of a dispute. This way, they have more of a say in how any disputes are handled and are not relying solely on the outcome of a costly court order.
- Legacy
The “legacy” benefit of Family Law Agreements is particularly relevant in the family business context. Families often have enterprises that they have built up over decades. A divorce, however, could quickly strip a family business of much of its value, which could either ruin the company or result in the company being controlled by someone who is not a member of the family. In contrast, a marriage agreement could be negotiated to expressly exclude a family member’s interest in the business or its assets from an exiting spouse’s claims. As such, businessowners can keep the family enterprise wholly and solely in the family.
If you or someone you know is considering a Family Law Agreement or has any questions about family business succession planning, please feel free to reach out to any member of Clark Wilson LLP’s Family Office or Family Law group for more information.
