BUSINESS,OWNER,SUCCESSION,PLAN business, insurance BUSINESS OWNER SUCCESSION PLANNING FOR DEATH, DIVORCE OR DIS

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If you own or are a partner in a business, you should have a succession plan (or buy/sell agreement or contingency plan) to facilitate a seamless transition for the company in the event of your divorce, disability and/or death. The succession plan should also be adequately funded with a combination of cash reserves and insurance. If there is no succession plan or buy/sell agreement in place and fully funded, you risk the business, your future and your family’s future. Without a fully funded succession plan or buy/sell agreement, death, divorce or disability could cause the business and your future or your family’s future to go up in smoke. If you are one of the 80 – 90 percent of business owners who do not have a succession plan you are holding a ticking time bomb. Every succession plan for a business owner or partner should pay attention to four things:·         Maximizing the value of the company·         Planning for the foreseeable Issues·         Planning for unanticipated catastrophic events·         Planning to reach your future goalsDivorce.  Based on recent data from the National Center for Health Statistics, Centers for Disease Control and Prevention, a marriage today has a 36% chance of ending in divorce. Your business or your business interest is probably the biggest asset you have (depending on your age and the size of your investments in real estate). Unless you have a prenuptial agreement, in the event of a divorce, your spouse is probably entitled to at least a portion of your interest in the company. Without a good succession plan, a divorce settlement could mean that you now have your ex as a partner in the company. Divorce could also mean that your spouse now owns your share of the company because you did not have the financial resources to buy out his or her portion. You could be working for your ex without a succession plan or buy/sell agreement. If you had a succession plan, however, qualifications for ownership of the company would have been spelled out and could have excluded divorced spouses. The plan would also have spelled out what would happen to the business in the event of a divorce of the owner or a partner. The succession plan also would have stipulated the creation and adequate funding of a contingency fund that would provide the funds needed to buy out the interest of the spouse of the owner or a partner. Disability. Any kinds of disability can affect the ability of a business owner to continue to manage a business or to make the same level of contribution to the business. Disability can result from an accident or an illness. Disability can be partial or complete. Every business owner or partner needs a succession plan to specify how the disability will affect ownership of the business, contribution to the business or exit from the business.  The succession plan should address your future and the company’s future. The disability section of your succession plan should address: ·         How you believe a disability would affect the value of the business·         How other partners will be affected financially·         How the decision will be made about the merits of you leaving the business·         Funding disability insurance to pay for your future·         Effects on medical and other insurance·         Funding to get the company through a transition·         Funding for partners to buy out your interest in the company according to a succession plan.Death. Death needs to be considered at every age. As much as we don’t want to think about it, death will come one day. The issue that must be addressed in succession planning is what will happen to your business partners, the company and your family after your death. Even though the likelihood of your death at age 30 is extremely low, it is important to keep in mind that you have far more options and opportunity if you plan early. The older you are the more expensive life and disability insurance will be. Once you get a catastrophic disease (cancer, heart disease, diabetes) it will be difficult (if not impossible) to get life insurance; if you get it, the cost could be prohibitive. Planning for your death (at any age) can be critical to the survival of your business. If you were, for example, the managing partner in a firm, your absence without a designated and trained successor could cause considerable uncertainty about the future of the company. Your death could affect the ability of the firm to borrow money. A death could also cause uncertainty and changes in terms from vendors. It could cause the loss of key employees. Finally, it could hamstring your partner(s). No matter how unlikely you believe it is that you will go through a divorce, become disabled or die before a ripe old age, these life events could be disastrous for you, your family, your business, and everyone associated with it in the absence of a succession plan. There should be a designated successor for your role in the company and a clear transition plan. There should be incentives to keep key employees from leaving the company during a transition. There should be adequate cash reserves and insurance to allow your partner(s) or successor(s) to buy your share of the business from your heirs. There should also be enough insurance or cash funding to carry the business until your successor can demonstrate the stability of the company to lenders, vendors and customers. Death, disability and divorce are the three things most business owners think of when a conversation about succession planning is begun. Unfortunately, however, only 10 to 20 percent of the business owners who need a succession plan actually have one. If you are one of those without a succession plan, don’t you think it’s time to do something?