Family business owners often struggle to effectively solve for dozens of common scenarios such as: family business compensation, philanthropic planning, and business succession planning.  

During a recent Food for Thought event at the Wisconsin Family Business Center, we covered some additional hot-button planning topics: planning for the financial future of a spouse marrying into the family and managing the capital gain impact from the sale of a family-owned business.  

These are complex topics, and the right solution should be customized for your unique family considerations. With thoughtful planning, open communication, and sound advice, your family can reach a successful outcome.  

Delicate Yet Crucial Planning for the New Spouse   

When a new spouse marries into a family who owns a business, there are many considerations and questions to ponder. 

1. Family structure and dynamics 

It’s critical to have open and transparent communication when family and business are involved. When a new spouse enters the picture, it can be helpful to share the structure of the business with them, including outlining family members’ key roles and responsibilities.  

Will the new spouse play any role in the business? Does the family have guidelines for how and when to discuss business after hours? This information helps set appropriate expectations for all involved and minimizes any potential conflicts or misunderstandings that may arise. 

2. Divorce and pre-nuptial planning 

A pre- or post-nuptial agreement should outline the financial rights and responsibilities of each partner, especially concerning the family business. Will any debt or liability from the business impact the finances of the new spouse?  

A buy-sell agreement should also outline how the business would be valued and how the business can be kept within the family.  

If children are involved, special considerations should be given to future inheritance, co-parenting expectations, and financial resources for the non-family business parent.  

3. Death, disability, and estate taxes 

If the spouse from the family business passes away, are asset transfers directed towards the children or trusts for the children, possibly leaving little to no financial support for the surviving spouse left to parent the children?  

How would household income be impacted in the event of a disability? Consider the impact of estate taxes on the family business and inheritance left to heirs.  

There are many potential solutions to help address the risks associated with each situation above, but let’s focus on the last scenario. It is common for family business owners to desire to keep the ownership of the business in the bloodline. This can lead to a spouse who marries into a family business essentially being disinherited if they are widowed.  

Their children may inherit the ownership in the family business, possibly leaving the surviving parent with little to no financial resources. It is important to consider how assets are being accumulated outside of the business for the benefit of a surviving spouse.  

It may be wise to consider life insurance to provide a death benefit and financial security to the surviving spouse.  

Paying the Tax Man 

Another question family business owners often struggle with is managing the capital gain from the eventual sale of the family business. Often, through the transfer of ownership over the years and significant appreciation of the value of the business, the capital gains tax due upon sale of the business is significant.  

In partnership with their advisory team, business owners can consider strategies to manage capital gains like installment sales, sales to an ESOP, and charitable planning strategies.  

We covered one specific strategy during a recent Wisconsin Family Business Center event, the Wealth Replacement Trust concept, as well as investment-related strategies to generate tax losses to offset the gain from the sale of a business.  

Each of the above strategies carries different benefits and trade-offs but could be an optimal strategy for your specific family and business.  

In all cases, talking with your advisory team (wealth advisor, CPA, and estate planning attorney) to ensure you consider all relevant options and strategies to address your unique family circumstances is beneficial.  

Your team can help you address questions that may not be top of mind but extremely important to secure your family’s financial security.