Protect Your Investment From Disruption by Death, Disability, Divorce & Partner Disputes
What a relief! You’ve finally got the financing together to fulfill your dream of company ownership thanks to a Rollover Business Start-Up, or a ‘ROBS’ transaction. Now, there are a million tasks at the top of your to-do list.
Unexpected Life Events Can Wreak Havoc on the Company
There is still more to do to protect your investment for yourself and your heirs. If you are married or if you have a co-owner working with you in the business, you should think about the big “what if” questions: what will happen to your spouse, your partner, and your company if some life event occurs, such as your divorce, your death, your permanent disability, or your termination of employment?
When one of the above events occurs, in the absence of any alternate arrangement, the law will automatically affect your ROBS stock. To avoid the economic problems this can cause, read this material and consider how you might prepare for the various succession scenarios. It will help you protect your significant investment in your retirement future and your business prospects.
Keep in mind the following legal rules that apply to your ROBS stock as you navigate this Life Events & Co-Ownership thread:
Upon the death of a ROBS owner, the stock automatically and instantaneously transfers to the owner’s death beneficiary under the plan. Do you know who your plan’'s death beneficiary is? Do you know what rights your plan document provides to the death beneficiary regarding disposal of their ROBS stock?
If a ROBS owner gets a divorce, the ROBS stock is almost certainly on the table in the property settlement negotiations. As a result, an “ex” may have a lot of leverage over a ROBS owner.
A dispute between two ROBS co-owners can reduce the business’ value. Things can get as ugly between business partners as in a divorce. With more than one ROBS owner in the picture, serious disputes can and should be handled with careful planning.
How can you pass your stock to your children in your estate plan? Generally, the plan must be de-ROBS-ified for you to pass the company ownership on to your children, even if they’re working in the company. There are a few ways to go about this depending on your specific circumstances.
The Bottom Line is: Life events like death, disability, divorce, or disputes can create major disruptions for a ROBS-funded business. Proactively reviewing your plan document, clarifying beneficiary designations, and considering contingency plans can protect your investment and ensure business continuity.
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