fair division of family assets

[YorkieBarn]

Hello

I’m looking for some unbiased thoughts about what would be a fair division of a family business/ property.
My DH is one of 3 brothers who all worked in the family business as children/young adults.
One brother then took over running the business when their parents retired. It was always successful and is now even more so, there are
some stresses associated with the business but also lots of perks. DH and the other brother have worked hard in their jobs and no one is financially hard up, the brother running the business is now extremely well off.
In the past DH and brother have been partly bought out and there are now negotiations about about finalising the splitting of the business. At present DH and brother have both been paid out about 5% of the current value of the business.
Obviously everyone involved has their own views about this. Brother with the business says he works hard and deserves all/most of it. The others think this is unfair as they would have expected at least a 1/3rd share of the value of the business when parents retired with some adjustments for inflation etc.
Any thoughts...........?

I bet its a farm...

@YorkieBarn

So, at the risk of sounding as greedy as my dreadful husband, are those people who say BIL should get everything/ almost everything are you planning to leave the vast majority of your estate to your favourite child and much less to the others or give all of them much the same?

No, but it’s quite different with family businesses. They need someone to run them, and may have no or little value sold outside the family. They usually represent the blood sweat and tears of at least one generation so it’s understandable when people want to see them carried on and favour one child when one child is willing to do that. It’s not a cash inheritance to your fil, it’s his business and one child wants it and the others just want money. Fil might not see it as he has the money, just a business which one child wants. A farm is the classic example.

You need an actuary. An actuarial valuation of the business should be able to assess what proportion of the current value is down to the efforts of the one actually running it. It's not about the value when FIL retired because if he had carried on running it or if all three brothers had run it together it may still have been as successful, but BIL's substantial contribution has to be recognised.
So eg. if the actuary said that the value of BIL 's contribution compared to the other scenarios is 50% of the current value, that should be his absolutely. The remaining 50% is then added to the other assets in FIL's estate to be split 3 ways. The value of the gifts already given to the non contributing brothers are then brought in to make the division fair so if estate is valued at £100k (add as many 00's as you need) and the other brothers have had gifts of £20k each that makes £140k which split 3 ways is £46.6k each. Take £20k off each of non contributing brothers share and they get £26.6k each and business brother gets £46.6k.
That's as fair and as simple as I can make it.
Your family absolutely needs financial advice, at the very least a good accountant and a tax planning specialist while FIL is still alive. So many people don't and the mess they leave behind can be horrible.

A bit entitled really you can only guess what the business was worth when bil took over as actually selling is not guaranteed
Also
Your dh has not had money tied up for 20 years it was his dads business them he had no money if his dad had sold and then spent the money your dh would have none or if he sold and split it your dh would have what its worth and not the 20 years extra he think he is entitled to
Ultimately its up to your PIL what they do with their money

You also say your dh and other brother did receive money/ cars etc at the time but prob not 1/3 well maybe the 15% they are being given brings it to 1/3 or thereabouts, maybe the other brother has received some shares as part of his wage etc as well

@YorkieBarn
I’m somewhat with you on this. Your FIL gave a huge asset to your BIL. In families it is normal to consider the other siblings when transferring a business. A legal document should have been drawn up regarding future ownership of shares and who had voting rights etc. Your DH and his brother should not have been removed from the company. In effect they have been. It’s normal to give equal family members shares in the business that reflect their position in it but also their relationship with each other.

I don’t however think 33% is fair. The brother who runs it should have over 50%. He runs it and should have the majority stake. FIL has 15%. This leaves 35% between DH and his brother. I think this would be fair. FIL should decide what’s happening to his 15%.

You should take legal advice about this though. I do think your DH should not have 33% but the current situation is wrong too.

I think you are being a bit to vague to give decent advice however I would say if they business was valued at the point that FIL retired the most DH could hope for is 1/3rd of that value. You say he has already recieved part of that? Let me work an example...

Of the business was worth £90k when FIL retired - one way of looking at it is that each brother gets £30k or 1/3rd share. If DH then got £20k in cash then that is 2/3rds of his share - given to him at the time so he could claim 1/3rd of his 1/3rd share - so 1/9th of the business now?

Or legally the brother could say FIL owns 15% of the company - which he can do as he likes with but they can lay of my 85% - so DH gets 5% or 7.5% depending on whether the owning BIL is included and no more.

Families and business hey... I'm actually glad my dad's business went bust as he retired as I would not want to have to work this one out with my brother who was employed by the business as the time and has since taken on a reinvented business from it...

We really don't have enough information to go on here. If the BIL who has worked in the business has had a substantial salary and/or dividends over the years that he has worked there then there is an argument that he has been rewarded for his hard work and shouldn't get all of the capital value now. If that is not the case then perhaps your husband and the other non working brother should get something in the interests of family peace but not everything. TBH 85:7.5:7.5 might be reasonable split.

The situation appears to be

Family farm - 3 brothers. All three brothers help out on the farm through their teens and and early twenties as is fairly standard on family farms

Two of the brothers eventually go off and forge their own careers, usually trades or something connected to farming still however loosely.

The brother who has decided to remain on the farm (often the oldest but not always) eventually goes into partnership with his parents. At some point the older brother negotiates a move into the main farm house with his family or for a new house to be built somewhere on the farm for either him or parents to live in.

At some point brother becomes the main partner as parents get older and parents stay in the partnership for tax purposes but in reality semi retire.

The other brothers get married etc/ have their own families and look at brothers situation in comparison to theirs, big farm house, lots of land, an asset that on paper has a huge value. They feel that it's unfair that their brother will likely have all of this handed over to him (often ignoring the huge sacrifices and responsibility that comes with being the next in line to the family farm)

For the brothers to get their 'fair share' it will mean selling land or having to find huge sums of money out of the farm business. This will likely lead to the break up of the business and generations of hard work being undone.

A lot of farming families try and plan for this by supporting the non farming siblings to buy houses etc but it falls apart if one non farming sibling still decides 'its not fair'.

On the above scenario, wise people issue shares. Also get proper valuations. Buying each one a house might be pretty good compensation but the shares should pay dividends. The brothers should have retained a seat on the “supervisory” board so decisions include them. To just ignore them and their position in the family is wrong and obviously hurtful.

Dropping the highly emotive “favourite” word in at the point when most posters seem to be criticising your DH and his similarly positioned sibling is a red herring and a bit manipulative. Business brother may or not may not be the “favourite”: working in the business will have entailed him spending a lot more time with his father, but I take it the PIL are not planning to leave the majority of their non-business assets to this one son, it is only the business, which happens to be the main asset, that will belong mostly to the child who has worked in it and seen a period of growth during his stewardship.

Your DH received a payout early on. The amount matters. Hard cash is worth a lot and if it was used in part to help purchase your home, or if it was invested in a long term moderate or high risk balanced portfolio and/ or used to make maximum pension contributions then your family has probably already benefited considerably.

Assuming they would get a third of the business upon the death of their father seems a leap of entitlement on the brothers’ part.

It sounds like all three siblings have benefitted from material advantage early in life thanks to their parents’ labours. That is a huge privilege. It’s a shame the two brothers outside the business are getting embittered about how much of their father’s estate they will get when he’s still alive.

I hope your FIL takes legal advice. I’m sure he will. As an aside, I doubt working with his father in a private family business has always been a bed of roses for “favourite” brother.

But businesses only thrive and are worth more because people who work in them put in the hard yards. The business could have totally failed and your DH and the other brother would have ended up better off than the one who got the business. Sounds like sour grapes to me - sorry.

@TizerorFizz but they were given money/ cars when business was first taken over by brother so their worth would have to be taken into account
Plus nothing legally says a parent must equally share their assets

Your DH and BIL are BU. They don’t own the business assets & haven’t contributed to them in any meaningful way.

@AdShellyElla

You need an actuary. An actuarial valuation of the business should be able to assess what proportion of the current value is down to the efforts of the one actually running it. It's not about the value when FIL retired because if he had carried on running it or if all three brothers had run it together it may still have been as successful, but BIL's substantial contribution has to be recognised. So eg. if the actuary said that the value of BIL 's contribution compared to the other scenarios is 50% of the current value, that should be his absolutely. The remaining 50% is then added to the other assets in FIL's estate to be split 3 ways. The value of the gifts already given to the non contributing brothers are then brought in to make the division fair so if estate is valued at £100k (add as many 00's as you need) and the other brothers have had gifts of £20k each that makes £140k which split 3 ways is £46.6k each. Take £20k off each of non contributing brothers share and they get £26.6k each and business brother gets £46.6k. That's as fair and as simple as I can make it. Your family absolutely needs financial advice, at the very least a good accountant and a tax planning specialist while FIL is still alive. So many people don't and the mess they leave behind can be horrible.

If I was the FIL and I was told an actuary was coming to decide how my assets were going to be shared out I would disown the two sons demanding "their share."

They have no entitlement to "their share" if parents decide to give everything to the son who has kept the business going that is absolutely their right.

@YorkieBarn

So, at the risk of sounding as greedy as my dreadful husband, are those people who say BIL should get everything/ almost everything are you planning to leave the vast majority of your estate to your favourite child and much less to the others or give all of them much the same?

My estate will be split equally between my children. However, there is no family business involved. If I owned a business and one of my children was running it and making a success of it whilst the others were not involved at all, that would be a very difficult situation. It would be unfair to that child if I split the business equally, but not doing so would mean that I was no longer able to split my estate equally between my children.

@YorkieBarn

So, at the risk of sounding as greedy as my dreadful husband, are those people who say BIL should get everything/ almost everything are you planning to leave the vast majority of your estate to your favourite child and much less to the others or give all of them much the same?

I don't plan to leave it all to one of them just like your FIL hasn't given it all to one son.

What I will do is give my money to anyone I want to give it to. My children had a good childhood, help at university and are able to make their way in the world. Anything they get from me will be a bonus but I do hope they aren't whining about it before I'm dead and while I've got the cheek to enjoy myself although I don't have the ultimate cheek of going on cruises. The cheek of it to spend their inheritance.

The value that the business has risen to in the 20 yrs since BIL ran it, is due to his hard work and tbh your DH has a cheek assuming he deserves a share. He had a share of the value when FIL retired, anything else is Bils. He sounds jealous and grabby.

A difficult one. I think you and your DH are being unreasonable.
My parents had a thriving business but when they retired and wound it up, it was worth nothing without them to run it.
Had I stepped in, it could be argued (to an outsider) that I had inherited a lucrative asset, but the reality is that any future profits would have been down to my hard work.
However, I appreciate the name and reputation of the already established business would count for something, so your parents in law compensating your DH and brother in the way they have already seems fair (at the handover of the business).

I think there’s a misunderstanding re what actuaries do!!!

They work in insurance and measure probability!

I haven’t read the full thread but here in Australia, there are lawyers who specialise in succession planning. It’s usually for farmers but not always. They would make sure all points were covered.

I think good legal advice is a necessity here.

@YorkieBarn

So, at the risk of sounding as greedy as my dreadful husband, are those people who say BIL should get everything/ almost everything are you planning to leave the vast majority of your estate to your favourite child and much less to the others or give all of them much the same?

Not comparable.

They received theirs years ago. And presumably will also receive another piece of the cake when his parents die.

If there was an issue this needed discussing before your oh spent that as he pleased and followed his dreams doing as he pleased not looking back and following his father's footsteps. Not giving 2 hoots. Yet now wants another cut of this cake!

If I understand correctly, this may be a legitimate way to tell the story:

At some point one brother committed himself to working in the business full time, perhaps while the others were away studying or starting other careers. Then the father decided he was ready to step down and passed on the business, retaining a small but not controllling interest of 15% . This was not discussed with the other brothers at the time.

Some time later, realising that there was an issue of fairness in inheritance, the father passes on some gifts to the other two brothers, in lieu of their having had a share in the business, ** and suggests that it will be made up to them - ie made fairer - down the track. They don't appear to have had any say in what they were given at the time, or any chance to have an opinion.

Now, twenty years later, proper discussions are being finally had, and, surprise surprise, there are differences of opinion!

The story does feel quite different depending on how it's told.

I hope you can help them find a way forward that cultivates peace!

Thank you @Pythonesque, I think that’s pretty much how it happened, plus FIL has been very keen to ensure that the business thrived and didn’t want to risk taking too much out in the earlier days.

They don't appear to have had any say in what they were given at the time, or any chance to have an opinion. So they have had no say in what they were given, do you normally expect to have a say if someone is giving you something? They got money and cars, now they are likely to get more but don't think it is enough. If it was my kids and they were so ungrateful they'd not get another penny. Mind you I suppose the father has to share some responsibility if his children don't understand that the polite thing to do when offered a gift is to say thank you.