While doing research on corporate control issues recently, I came across the following article, published by The Wilmington Trust, a venerable private wealth management firm:

Imagine attending the next board meeting of your venerable family firm, only to be seated across from your former spouse’s new partner, who is 15 years your junior. With the divorce rate high, the liklihood of these situations occurring is increasing. But when it comes to protecting your family business from such potentially disagreeable divorce fallout, it’s important to take some precautionary steps:

• Develop a corporate culture that separates ownership from authority and control.
• Employ legal tactics and structures to prevent a divorce from deadlocking the business.
• Establish mechanisms (including participation in family business associations) to keep the channels of communication open and prevent small conflicts from becoming big.

Corporate Culture
Too many families confuse a stake in the business with authority and control. Here is one textbook example from Paul Karofsky, director of the Northeastern University Center for Family Business: “A century-old company, in which ownership was diluted among 18 grandchildren, gave everyone an identical salary, private office and luxury car regardless of their job with the now-defunct company. It would have been much more appropriate to provide salaries and benefits commensurate with their job descriptions and to distribute dividends based on their ownership and profits.”

The model for separating ownership from control in a mature family company, such as the one with 18 owners, is akin to a public company. At Staples®, where just about everyone owns stock — from truck drivers to senior management — no one has grounds to complain when a truck driver, who bought Staples stock 20 years ago, owns a bigger stake in the company and has a higher net worth than his newly hired, better-paid branch manager.

Legal Tactics
When children marry and their spouses enter the family with a presumption of status in the company, the stresses can severely impede business success. Add divorce, and the business could be doomed. As the founder, or senior family member, you have a responsibility to protect the company from being deadlocked by an irate ex-spouse following a child’s divorce. When the children are young and unmarried, it is relatively easy to insist on prenuptial agreements to prohibit spouses from owning stock. To encourage acceptance among the adult children and their betrothed, make it clear that the lack of stock ownership bears no relationship to a financial settlement in the event of divorce.

Obviously, prenuptial agreements cannot be required if marriages have already taken place or in situations where spouses feel justified in owning part of the business. For example, two sisters started a small, mail-order company to sell gardening tools. One sister’s husband offered to set up and run the website, which became hugely profitable. Meanwhile, the other sister’s husband helped out with the books and eventually joined the burgeoning company as CFO. The small business grew into a sophisticated corporation, with no one addressing any of the tough issues such as divorce, death, succession, and so forth.

In an emerging business, such as the gardening tool company, the owners and their spouses must recognize that their obligation to the business far outweighs their individual need for control. Since the spouses are already active in the company, one solution is to create a trust which will own and control all of the stock. In addition to family members, the trust should have one or more outside trustees, preferably a corporate trustee, to break any deadlock. Without a trust in place, shareholders can seek, and will likely receive, a remedy from the courts if a deadlock threatens the business. Unfortunately, having the courts make business decisions is costly and cumbersome, and everyone can wind up with bruised feelings. Trust documents should be re-examined and revised periodically to make sure they continue to serve business and family interests.

Family Business Associations
Family Business Associations can assist in facilitating communication, resolving conflict, and providing management, legal, and other insights. In addition, these organizations offer family business owners, including spouses and children, an opportunity to share their problems and solutions in a non-threatening, peer-to-peer forum.

In a Nutshell

• The divorce rate is high, but the probability of divorce increases when the number of family members involved in the business grows.
• Disputes over power, money, and control at home will be played out in the business.
• Be alert to status issues, both within the company and community.
• Clearly distinguish between ownership and jobs, but do not go overboard by being unduly tough on an heir apparent.
• Communicate and revise the trust and other agreements to cope with advancing age, marital status, involvement, health, and the like.
• Establish an exit strategy, such as a Texas Shootout, which allows one partner to set the price for his or her half of the business and the other partner to either buy or sell at that price.
• Employing spouses offers substantial benefits, including participation in business travel, the company pension plan, health plan, and Social Security. But roles and compensation for spouses must be well defined, recognizing that other family members and employees will notice every scintilla of preferential treatment.
• Assess your strengths as the business grows; if running the business day-to-day is not your forte, consider hiring an outside CEO or general manager.

Developing an ongoing relationship with your financial institution and a family business forum is well worth the effort. No corporate job can compare to a well-run family business when it comes to flexibility, financial reward, and an opportunity to work with people whom you know, love, and trust.

Source: The Wilmington Trust

An article published recently in USA Today reports that prenuptial agreements are more acceptable today to couples who are engaged than at any time in the past.

Nearly one-third of single adults say they would ask a significant other to sign a prenup, according to a February survey of 2,323 adults by Harris Interactive.

 Only 3% of folks with a spouse or fiancée have a prenuptial agreement, but that’s up significantly from the 1% reported when Harris conducted a similar study in April 2002.

Personal-finance expert Suze Orman encourages every engaged couple to get one to protect their current and future assets as well as to shield themselves in case a mate secretly runs up massive credit card debt (which could damage both partners’ credit scores).

 More than one-third of adults — 36% — said prenups make smart financial sense, according to the Harris survey. When Harris asked that same question in 2002, 28% said so.

“People are hopeful,” Orman says. “They want their relationship to last. … It’s just natural that they don’t think they’ll need a prenup. Never in a million years do they think (divorce) will happen.”

 In 2008, the divorce rate was about 50%. Among married Americans, the median duration of their wedded life in 2008 was 18 years, according to Pew Research Center’s analysis of government data.

Given those odds, “Hope is not a financial plan,” says Orman, who urges that every couple get a prenup. “The time to plan for a divorce is not when you’re in a state of hate,” she says.

Among the divorced, 15% say they regret not having a prenup in their most recent marriage, according to the Harris poll. Men are more likely than women to have this regret, at 19% vs. 12%. Nearly 40% of divorced Americans also say they would ask their significant other to sign a prenuptial agreement if they remarried.

Prenuptial agreements make sense for lots of reasons, especially for people who have family businesses, children from a prior relationship, or substantial personal savings or retirement savings. See my previous post:

 ”Once You Pop the Question, How do You Spring the Prenup?“

The Chicago Sun-Times, Huffington Post, and The Daily Beast are reporting that Elin Nordegren, the wife of golfing billionaire Tiger Woods, is demanding that Woods renegotiate the terms of their prenuptial agreement after learning of Woods’ multiple infidelities. Under their 2004 agreement, Woods allegedly agreed to pay Nordegren the sum of $20 million if they should separate after ten years of marriage. The recent news reports claim that Nordegren is now demanding $55 million to stay with Woods for another two years, seven years in total.

If the reports are true, why would Woods agree to such terms?  The obvious answer would be “to induce Nordegren to commit to marital reconciliation.” Yet, a less obvious, perhaps more cynical answer would be “to let the negative publicity abate before announcing that the couple is divorcing.” By letting the media firestorm subside, even temporarily until the couple can make a plausible announcement about having attempted to reconcile, Woods might be able to preserve his valuable sponsorships. Pure speculation on my part, sure, but if his sponsorship worth hundreds of millions of dollars per year were at stake, wouldn’t it make sense to throw a little money her way?

Asking your fiance for a prenup doesn’t have to spoil the joy of your engagement. Personal finance experts agree that prenuptial agreements are an effective way for couples to make financial plans for their future. More than one-third of all couples say they would like to have a prenuptial agreement, according to a recent survey. A prenuptial agreement can address important topics like spending, credit card debt, and estate planning, as well as protecting family businesses and premarital assets, providing for children’s needs, and avoiding costly, protracted litigation in the event of a divorce. These three tips might make the conversation easier to have:

Allow enough time.

First, give your betrothed plenty of time to think about it. No one likes to be rushed. You know how crazy it can be to make wedding arrangements, so don’t let the prenup be the last thing on the list. A good rule of thumb would be three to six months before the wedding.

Create a context.

Next, help your fiance to understand why you need a prenup and how it fits into the “big picture.” You might want to present the prenup along with wills, health care powers of attorney, living wills, insurance policies, and other estate planning documents. The prenup is just one of several documents that will establish the financial foundation of the marriage.

Get independent legal counsel.

Finally, encourage your fiance to hire independent legal counsel. You might even offer to pay the bill. This step will allow your fiance to ask questions that might be uncomfortable for you or your lawyer to answer, and it may ensure that the agreement will be enforceable.