Sunday, 26 October 2014

Marriage Contracts and Mediation for Family Businesses in Ontario

One of the best ways to protect a family business from the impact of divorce is for the shareholders to have marriage contracts.  Without one, an owner can have the value of his or her shares included in the division of property, and support payments could be very high. If he/she cannot pay, will shares have to be sold, will business assets need to be sold, and how will the company be affected?  In the uncertainty, how will the emotional spillover affect the children, the managers, employees, customers, and extended family?

But a hastily, poorly executed marriage contract may be worse.  It will create a false sense of security, plus a sense of injustice.

Two cases that illustrate this.  In both LeVan v. LeVan (2008, ON) and McCain v. McCain (2012, ON), the court set aside marriage contracts because they were improperly done.  
Here are the problems to watch out for:

  • Pressure to sign:  Don't ask a spouse to sign a contract a few days or even weeks before the wedding.  Sometimes the parents or other owners do not appreciate how their requirements create such pressure, as was found in the McCain case.
  • Unfair terms:  Don't create a totally one-sided contract, with no provision for a long-term marriage, as occurred in the LeVan case.
  • Don't hide assets:  In both those cases, the husbands did not disclose their true net worth at the time of the contract.
  • Don't impede independent legal advice:  For instance, in LeVan the wife's lawyer was fired when he advised her not to sign, and the husband's family assigned a lawyer with connections to their corporate lawyers to advise her to sign.  

In both those cases, judges awarded millions of dollars in equalization payments and spousal support to the women who had stayed in the marriage for many years.

So what should you do?  Start addressing the issue months before the wedding, or do it soon after the wedding (or a combination of both).  Cooperate with the requirements of full financial disclosure.  Use a family mediator to have the discussion - after all, it's a sensitive one - and each should get an independent lawyer to offer advice and assist with the final drafting of the contract.  The mediator can help cut the costs and ensure that the negotiation does not undercut the love and wedding bliss.   

Contact Daryl Landau for your marriage and cohab contracts.  www.common-ground.ca


  

Lessons from my Father

In my middle age, what I feared most as a child came to pass. My father passed away. In the world of family enterprises, this is often what constitutes a promotion. Now that the initial chaos of the transition and the main grieving period has passed, I have time to reflect on what I learned from Sy Landau, my dad.
My father was special, and a scholarship was named in his honour.[1] It recognizes his contribution as a trainer of mediators, a designer of our training program, and for his general consulting skills and special qualities.
When I was young, I took some jobs at Manulife Financial where my father had spent most of his working life, as VP of Human Resources. Driving home together, he would tell stories of the characters at the top of this iconic company. The stories helped humanize (and ‘humourize’) that corporate world. They also showed how determined change agents could reshape company culture.
Me & Dad
Much of our business was, and is, training people in mediation skills.  It is not a pure family business because it has non-family partners, as well as employees. It is here that my father’s key lesson was to be fair to all, whether family or non-family members.  Most of us can identify with the desire to have your children follow in your footsteps, and there is often a business benefit from the loyalty a family member gives to the business. He was also a stickler for high quality, and he was not one to sacrifice that just to see his child ‘succeed’.  Fortunately, Sy had cultivated relationships of trust and respect with everyone that made it possible to navigate tough issues as he grew less willing and able to work.
Family businesses notoriously do not plan and manage their successions well. My father, fortunately, did not have his self-esteem too invested in the business, nor was he too afraid to contemplate change. Experienced in strategic planning, he responded to requests for a plan of gradual succession. Still, my father’s early, prolonged and erratic decline taught me that crisis will always spur the important discussions, even as it also interferes with good planning. The timing is rarely in your control and transition is rarely predictable.
As a speaker and consultant, my father had prized qualities that are hard to replicate. He translated the big theories into pictures, charts, and above all, stories. He created most of the materials we still use in our courses. The methodology of interest-based negotiation and mediation was logical to him, and he knew how to demonstrate that logic to others. These traits were a huge asset when we co-authored our book, From Conflict to Creativity (2001).
The final lesson from my father that I will impart is a very important one: work isn’t everything. Family businesses have a tough time with the boundary between family and business. Some of us struggled with that, but not Sy. He valued his free time too much. He also knew how to make family time fun.
It is a time to reflect on the past and chart a new future. Sometimes I feel an inner struggle between my increased role in the family business and my desire for independence and self-determination. My parents never tried to force a path on me. If I listen to my father’s voice, I can hear it advising me to choose wisely and thoughtfully, with confidence and without regret. I like the sound of that voice.
[1] The Landau Family Scholarship (my father’s choice of name), created by the ADR Institute of Ontario, available through Conrad Grebel University College for their academic or certificate conflict resolution programs for someone who can make meaningful social change. Sy passed away from cancer in December 2012.