Blood is Thicker Than Water, but not a Revenue Stream

As a CPA, I often see both the best and the worst in people. The best comes when you see someone “make it” in the business world. There is no prouder moment than to see a young entrepreneur succeed with his or her dream, or even to see a grizzled veteran of the business world finally hit a home run with their latest idea. The worst, unfortunately, comes when people are willing to cast aside lifelong friendships – or even family – over money.

I have seen brother fight with brother over control of a business, marriages torn apart over financial issues, parents and children go years without speaking because of disagreement over the family fortune, and the list goes on. How can a prudent individual preserve the financial health that they have worked so hard to build without causing friction in the family? The answer is surprisingly simple – they must plan.

Keep the estate from becoming a source of conflict

No one likes to envision a day when they are no longer with us. I understand that. However, I would bet that even fewer like to envision their families torn apart over financial matters after they are gone. For that reason, my top tip to avoid financial conflict within the family is to have an adequate plan for the estate. Whether it’s a simple will or a more complex plan involving trusts, everyone should have a specific plan for what will happen to their possessions upon their departure.

In fact, I would go one step further and say that this plan needs to be made crystal clear to all involved. I know there was a societal taboo about discussing terms of the will with the heirs, but how much less conflict could there be if everyone knows what to expect well in advance? The top reason that wills are challenged is that someone is shocked to hear that they either got less than they hoped for or that they were left out entirely. Avoid that by discussing your plans with all the parties involved.

Keep business, business

My next tip for avoiding financial conflict within a family is to keep the business part of the relationship completely professional. If two family members go into business together, my advice to them is to act like they are total strangers when setting up the business. Draw up legal contracts. Make a partnership agreement. Clearly document each persons’ expectations and responsibilities. Draw up a clear succession plan. Make sure the process for one buying out the other is clearly defined.

If anything, be even more careful than you would be going into business with a stranger. Almost every time I have seen family go to war over a business, there has been little to no formal structure to the business and it ends up being “he said, she said”. These experiences become emotionally draining and take an even bigger toll on the family. Avoid even the chance of this type of heartache by reducing everything to written requirements, and leave the heart out of it.

Just (don’t) do it

Of course, the easiest way of all for someone to avoid financial conflict with their family is to simply not deal in financial matters with them. I realize this is easier said than done, but when you add the emotional charge of family matters with the emotional charge of dealing with finances, you have a potentially explosive situation almost every time.

If I had a nickel for every time I saw two brothers think it would be “fun” to go into business together, only to end up not speaking to each other by the end....I could retire early. Same for the cousin who always wants to borrow money, or the estranged child who suddenly wants to go to college on mom and dad’s dime. In the end, the less financial interaction you have with those closest to you, the more likely you are to keep them close.

--Dan Musick is the Tax Matters Partner at Cook & Associates, a full-service CPA firm with offices in San Marcos and San Antonio, TX.