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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

Estate Conflict in a Real Estate Family

His wife knew he was sticking his head in the sand. He knew it, too. But neither of them wanted to confront the estate issue with their adult children and have it explode in their faces. Unfortunately, his estate plans blew up in her face not long after he died. The husband had owned an auto dealership then parlayed it into a patchwork of real estate investments which, in a rising California market, were worth a great deal of money. Their holdings included vacation rentals, undeveloped land in the foothills, downtown commercial parcels, and a hotel that was jointly owned with the property managers. One of their three sons, Marty, went to work with the father in the real estate company. This was resented by another son, Steven, who was a lawyer. But Steven’s displeasure was never openly discussed. Marty and Steven had never gotten along, and the family had spent a lifetime avoiding the rivalry. When it came time for the parents to plan their estate, they never considered sitting down with their sons and talking openly about it — or getting help with such a conversation. The risk of opening a can of worms seemed too great; so the planning was done without any input from the sons.

The estate made the three sons co-owners of the property with their mother. While Marty ran the day-to-day business of the real estate company, all three brothers and their mother comprised the board and had to make all major decisions together. It proved nearly impossible. Steven intimidated both of his younger brothers and opposed everything they wanted to do with the properties.

With an equal share in the business with his brothers, Steven was free to create havoc, which he did. While the mother and two sons could have outvoted Steven, the mother was understandably reluctant to go down that path and cement the division among them. But when Steven began making veiled threats of lawsuits, the mother insisted that they turn to mediation by BMC Associates. The alternative was the loss of control, mounting expense, and collapse of relationship associated with litigation.

Mediation is facilitated negotiation. We were able to help Steven and the other family members negotiate an accommodation — a buyout of Steven’s interests — that they could all live with. Steven was able to use his leverage to hold out for more than he was entitled to by any conceivable business standards. But the rest of the family was freed from his obstructionism and was greatly relieved to avoid litigation and a complete breakdown of their relationships. Mediation kept the conflict from escalating further and resolved the outstanding issues at the lowest financial and human cost.

Afterword: Mediation worked to resolve conflict and preserve relationships in this case. It is an important part of BMC’s conflict prevention and resolution service offering. But we strongly recommend prophylaxis as opposed to cure. As challenging as frank conversations might have been when the father was still alive, careful preparation for estate planning could have produced estate plans that reflected an agreement hammered out by both parents and all three sons. This would have avoided a great deal of pain and cost.