When the Mills family, owners of medical supply conglomerate Medline Industries, sold an 80% stake in the fourth-generation family business to a group of private equity firms in 2021, I told Bloomberg at the time that the family’s $30 billion windfall would require some serious attention to ensure it didn’t poison family relations.
Of course, the Mills weren’t alone. Other families, like the Pritzkers, took their windfall and went heavily into politics, venture capital and private equity, and philanthropy. Whatever the Mills do with their assets, they’d better have a plan, I told the reporter.
“In this case (cousins as well as CEO and president, respectively) Charlie and Andy (Mills) may want to consider splitting the assets to ensure smoother transition for each of their respective families,” I said at the time. “They are about to face some hard decisions.”
It wouldn’t be the first time. And you don’t need an 11-figure payday to potentially suffer the fallout. When a family business cashes out, especially when it involves multiple generations, the dollar signs should raise warning signs. How do you keep the peace – or can we even imagine what it would take to avoid a conflict?
It’s time to ask the logical – and difficult – questions regarding the division of assets. The obvious questions relate to the family unit, which may include parents, their children or relations; adult children, cousins and their spouses who have an ownership or a leadership stake.
The division of assets transcends the business roles and involves family dynamics. That’s only the beginning of the potential complications. What if one child had a title and led the business contributing to its growth or success, whilst another held a position but hardly worked – yet held favour with the patriarch or matriarch with the expectation of a pay-out?
Families will tell you they want a peaceful process in pursuit of the equitable distribution of assets. But how do you define equitable when siblings, cousins and even their spouses are tugging on emotions and potential purse strings?
The obvious first step, before any of this arises, is to draft an agreement clearly defining how proceeds will be divided. As we’ve explored in prior articles, this requires open and honest communications whilst drafting to ensure there are no surprises when the agreement is applied. Based on their involvement in the business or even the nature of their relationship with the family (e.g., close bonds versus estrangement or alienation), some family members may be deserving of more – or less – pay-out than others.
Dealing with minor children can bring their own unique dilemmas. Money there can be divided into “buckets,” where minor children can draw distributions based on their age or milestones, like 18 or high school graduation, 21 or college graduation, 24 or graduate school graduation, etc. This might irk younger children (or their parents), who might have to wait years before they can receive their first distribution.
For investment’s sake, it would be ideal to keep the money as a single account to heighten investment opportunities. Of course, this may invite confrontation from those who want an immediate pay-out. A multigenerational family from South America – sold their business for more than $1 billion. The son was the CEO and received 80% of the proceeds. His sisters, who weren’t involved in the business each received 10%. The son wanted to keep the money together for the sake of family unity. The sisters wanted their distribution immediately.
The question becomes, are you a family first or business first? The goal should be to find distribution or investment solutions that keep the family united in a common pursuit. Working with an advisor skilled in family business or family office affairs can help smooth the transition and keep the warning flags low on the path to a successful distribution.