Grieving the loss of a spouse is perhaps the most difficult crucible anyone can endure. The fog of grief can make it seem impossible to take even the simplest action; it’s as if the whole world has been turned upside down.
For someone whose spouse was a business owner, however, it can be even harder. Depending on what type of business it is and whether or not other partners are involved, some decisions must be made relatively soon, despite the complications posed by the burden of grief.
On the other hand, like most difficult situations, the key is to take one step at a time. It’s also vital to have a team of legal, tax, and financial professionals around you on whom you can depend for steady guidance. Let’s take a look at some of the questions that need to be answered sooner, and then consider steps toward resolving the issues around the business for the surviving spouse.
What kind of business is it?
It’s not uncommon for a married couple to work together in a small business, but when the death of an owner occurs, one of the first things that must be known is the legal form of the enterprise. If the business is a sole proprietorship that was 100% owned by the spouse, it is most likely that full ownership will now vest in the surviving spouse. If the business is a partnership, the surviving partners will have a say in what happens. If the business was incorporated, you must determine who owns the majority of the company’s stock.
Is there a buy-sell agreement in place?
Especially for businesses with more than one owner—like a partnership or corporation—it is fairly common for there to be a buy-sell agreement in place that stipulates what happens if one of the owners dies. Sometimes, these agreements are funded with life insurance that uses the death benefit to buy out the deceased owner’s equity. Other times, the agreement may call for paying out the deceased owner’s share over a period of years. As the spouse of the deceased owner, you should obtain a copy of this agreement. You should also consult a qualified tax advisor for the most advantageous way to structure any payments.
What is the value of the business?
This will be an important question to answer, whether the surviving spouse decides to keep the business and run it or to sell it. If there is a buy-sell agreement in place, the agreement will likely stipulate the method for calculating the value of the business and of the deceased owner’s share. Nevertheless, it is advisable to obtain the services of a qualified business valuation attorney or other professional, especially if the agreement has been in place for a long time and may not have been updated recently.
Should I sell or keep running the business myself?
This decision is highly dependent upon the surviving spouse’s relationship to the business prior to the death of the owner. Many “mom and pop” operations can probably continue in essentially the same way, perhaps with the addition of a child or other trusted partner to assist. For some surviving spouses, however, this will not be an option, especially if they were not previously involved directly with the operation. Depending on the estate planning that may have been done, it is possible that an older child or a key employee may be primed to come in and take over the operation. But these decisions will require careful and open communication. And once again, decisions about selling the business should include an accurate assessment of the value of the enterprise.
Should I just close the business?
While this may sometimes be the best option, it is not always a simple matter. If the business has outstanding debts, these must be settled. Often, if the business was leasing space, the lease must be paid out, even if the business vacates the premises. If there are ongoing legal matters involving the business, it may be advantageous to continue the legal structure at least long enough to resolve the litigation. Contracts with suppliers, obligations to employee retirement plans (if any), and other commitments must also be considered.
Making It Easier
Perhaps the best way to make it easier to deal with the questions above is to have a solid estate and succession plan in place. For small business owners, it’s easy to get so involved in the day-to-day needs of running the company that planning for the unexpected falls by the wayside. However, with a solid estate plan—including a succession plan for the business in the event of the owner’s passing—many of the uncertainties can be dealt with ahead of time, taking a huge burden off the shoulders of the surviving spouse during a time of grief.
At Mathis Wealth Management, we know the value of having the right people on your team, especially during the difficult times. Our fiduciary financial guidance places your needs foremost, and our network of professionals can help you make the right decisions for the future. To learn more, please visit our website.
