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What If Your Business Partner Died Tonight?

There's nothing quite like the business relationship between partners (or, for that matter, co-owners of an closely-held company). In fact, you probably spend more time with your partner than you do with your spouse. Ideally your business partner is one of your business' greatest assets. But that person is also your greatest potential liability. Ask yourself a few key questions: What if my partner died suddenly — perhaps tonight? What would happen to the business? What would happen to my family and my partner's family? These may not be the most pleasant questions, but they're ones you cannot afford to ignore.

Why? Because the danger is real. The odds that one of you will die prior to retirement are a lot higher than you might think.

Now imagine what can happen to the business when a co-owner dies. Conflicting concerns between the surviving owners and the deceased's family are fairly common, as everyone becomes concerned about the future. Depending on the deceased partner's role in the business, ongoing business problems might occur on top of that. As suppliers take a nervous wait-and-see position, creditors become antsy for payment and refuse to extend additional credit. Customers may back away. Valued employees may leave. In short, problems compound, feed on themselves.

Four Choices
What are your options? If your business partner died tonight, you and the other survivors would have four choices:

  1. You could liquidate the business and distribute the remaining assets. Of course, in the process, you would do away with your own source of income, as well as with a business enterprise in which you've invested a great deal of time and money. Plus, the business assets might only sell for a fraction of what they are worth.
  2. You could take in your late partner's heirs as your new associates. However, keep in mind that a successful partnership is a delicately balanced relationship. Except in rare situations, bringing on board a deceased partner's spouse or other heir can be difficult.
  3. You could sell out to the heirs. This also rarely works. Starting with a almost inevitable tug-of-war over the purchase price, the situation usually goes downhill from there.
  4. You (and other partners) could buy out the surviving heirs' share of the business. This, in most cases, is the most practical course of action. Once again, however, there are the problems of establishing price and terms, as well as coming up with the money.

An Ideal Solution

  • Gives control of the business to the surviving active owner(s).
  • Provides fairly and adequately for the deceased's family members.
  • Does not impose a financial burden on the business.
  • Provides a fair, objective means to value the deceased partner's share of the business.
  • Prevents legal hassles and feelings of bad faith.

For most business owners, the recommended solution that helps meet all those objectives is a properly funded buy-sell agreement that spells out exactly what will happen if one of you dies or becomes disabled.

The buy-sell concept is simple: A properly arranged and funded agreement is a legally binding contract that spells out exactly what is to happen if one of the business's owners dies. The document itself can be as simple or complex as needed and can provide for virtually any contingency. However, it generally calls for the survivors to buy — and their heirs to sell — the deceased owner's share in the business. Just as important, it should spell out the actual purchase price or, more commonly, provide an objective formula for determining the price when needed.

Retirement
You don't have to retire! That's one of the nice perks of being self-employed or a business owner. You're a doer. You like to make decisions and see results. But maybe someday — perhaps when you're 65, 75, or older — you just might want the option to trade the fun and frustration of work for golf, gardening, vacationing with the grandkids, or sitting back and relaxing with family and friends. Just as important, you also want to have all your ducks in a row, so to speak, when it comes to making sure your loved ones are well provided for in the future.

Neither of these goals just happens. It is the result of planning, of decisions you make today. Because, as the old saying goes: Those who fail to plan... fail. That means retirement planning and estate planning... mapping out a strategy to create options for you and for your family.

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New York Life Insurance and Annuity Company does not provide tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions.

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What If Your Business Partner Died Tonight?

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