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The Partnership charter

The Partnership Charter by David Gage Millions of people co-own closely held companies, family businesses, and business partnerships, but establishing them and keeping them together is never easy. Here, finally, is the guide they have been waiting for.... Read More
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Co-Ownership of Property: Generations Repeating Generations

Posting by David Gage, Principal at BMC Associates

I received this email message from a 40-something man whose grandparents had built a beautiful summer property on a northern lake. His mother was intending to offer to purchase it from her brothers and sisters who no longer saw eye to eye on how to maintain the property. His mother’s intention was to buy her siblings’ families out and then leave the property to him and his two siblings in her will. He had just learned of his mother’s plans to have the three of them become co-inheritors of their vacation property.

I’ve been talking to Mom regarding the possible purchase of [the family property] and have some concerns. If the purchase does happen I have worries that our own family group will function at a healthy, functional level. I would hate to have what has happened with the larger family happen to us. At this point I am not sure how to proceed, but I think that it might be beneficial for our family…to discuss possible issues that might arise. However, I will give you the floor on how you think we should best proceed.

Over the years many next generation co-inheritors have woken up and realized that in addition to inheriting the family vacation property (or family business), they could  inherit the struggles their parents and aunts and uncles experienced. And they are correct. From one generation to the next, the people change, and the problems may appear to be people — or personality — related. Yet they are actually “structural,” meaning they are related to owning something together. There are certain challenges built in to any co-ownership situation. No matter how well siblings get along, no matter how well they have traveled together or shared time at the summer cottage over the years, the situation changes subtly but dramatically when they become co-owners.

When parents make siblings co-owners of properties or businesses, they alter their children’s relationships. Gone is the carefree aspect. Where parents and their generation once made difficult decisions about money, repairs, and who was responsible for what, now those decisions rest in the hands of the siblings themselves. That’s what we mean when we say it’s structural. It’s inherent in owning something with another person. You can’t escape it. Years ago, I coined the term, “accidental partners” for siblings who are made into partners by their parents.

Importantly, as the man who sent me the email realized, you can’t escape it; but you can prepare for it. While countless siblings do become unhappy with their co-ownership situation and wind up struggling to get out of it, others succeed. What differentiates the latter from the former? We believe my correspondent was right when he wrote, “…I think that it might be beneficial for our family…to discuss possible issues that might arise.” Not only discuss them, but negotiate them and come to written agreements about how to deal with them.

When they go through the process of discussing, negotiating, and coming to agreements, which we call establishing the DNA of partnerships, siblings discover how they can effectively plan for the challenges that face them. They create agreements that keep them from being blind-sided; they keep themselves from becoming accidental partners. They agree on how to handle situations before they arise. For example, they agree on how one of them will be bought out if he or she moves across country and no longer wants to use the property. This “scenario planning” is critical to the long-term success of any partnership. It is one of the 13 planning areas we build into every “Partnership Charter” process at BMC Associates — the firm I founded more that 20 years ago. The Charter was designed to ensure that would-be (and existing) partners address the whole range of issues that come with co-ownership.

The difference is all in the planning. Planning is the road test for your partnership. It helps you decide how to be partners and whether to go down that path at all—-if you have that choice to make. It gives people the confidence to say, “I don’t want to do this,” or, “I believe we can do this together.” Without thorough planning, it’s too easy to repeat the problems of one generation in the next.

Read more about the complexity of families with vacation properties in David’s article (PDF), Holding on to Family Cottages – AJFL in the American Journal of Family Law (Spring, 2013).

Read more about the Partnership Charter.

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