We find that many of our clients who have these agreements in place either don’t have adequate coverage or in the worst cases, the coverage required has never been implemented. This leads to expense, delay and in many cases litigation when one partner dies and the surviving spouse and heirs are suddenly trying to get a business appraised and fighting for what is theirs. This can lead to the untimely sale of the business or its assets and really create a mess for the surviving partners; we want to avoid this and can avoid it with a simple insurance policy.
Here’s the simple self-assessment question I confront my clients with:
If one of your business partners died today, would you have the liquidity to buy off his family, or would you be in court explaining to a judge why your business, that represents 20 plus years of hard work, should not be sold?
If you died, would your partners be able, (let alone willing) to buy your family out in a manner that adequately respects your life’s efforts and contributions to the business?
If they cant confidently answer YES – to both questions we need to do some work.
Even in cases where the agreement is in place and has been well funded, we keep seeing cases where it was done so when the business was young. Now 10 or more years later the business has much higher revenues and value, and the “old” appraisal in longer valid.
We also examine DISABILITY INSURANCE (DI) in these cases. Think of the scenario where the business is supposed to have a DI policy in place on various partners but never gets it. Then one of the partners has a disability event like an injury or illness and can’t work but needs income. This is a big hit to the business, not only is it down one productive person, but the other partners have to continue to pay the disabled partner. This leads to resentment, financial burden, lawsuits and other issues that again could be simply and cost effectively avoided.