Keys to Spousal Business Succession

A state of momentary confusion typically engulfs a loved one when notified that their husband or wife has just been in a serious accident or passed away. The atmosphere is often charged with high emotion. Suddenly the world as the surviving spouse has known it is turned upside down. Soon life-altering decisions will have to be made, especially when a family business is involved.

Consider the story of Amanda whose husband Tory was hit by a drunken driver while riding his motorcycle. Even though she had worked in their business, she was totally unprepared to replace Tory as its principal operator.

It was apparent that the business would soon unravel with no one controlling the company. Amanda quickly found that Tory's will and life insurance were of little help. Each would apply only in the event of his death. Instead, Tory's durable power of attorney appointed Amanda as his personal representative to conduct business under specific conditions that included his being incapacitated.

The family's financial future depended on her working in his place. Somehow she and the employees had to keep the business operating. Her management style could be described as crisis control through trial and error as she learned from daily mistakes. There was no planning to assist her in running the business, only the legal temporary transfer of authority provided by the power of attorney.

A major fear of many spouses is "what happens to them and their families if their husband or wife who is the principal operator of a company becomes unable to operate a small company owned by the family?" The answer depends on many things, depending on what planning and preparation has been accomplished before a triggering event occurs. If there has been no planning, then the fate of the business falls to state statues that direct the appointment of the disabled owner's personal representative. The ability to control management of the company can transfer with the appointment.

There is no guarantee that a family member will be appointed to that position. A family's future interest in the business remains in peril depending on the appointee's success.

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