The personal dynamics in any blended family can be complex. But for ultra-wealthy people, the risks presented by marriage, divorce or remarriage must be considered in financial planning.
Failing to recognize the importance of the complexities and potential instabilities can be perilous, especially when a family business at stake, experts say.
“If there’s family disharmony, even though there may not be an immediate impact on the asset, it can drain the actual growth and ability to run the business or family enterprise,” said Caroline Dabu, head of wealth distribution and advisory services at BMO Financial Group.
One mistake people often make is not anticipating the challenges that can result from introducing an “outsider” to the family.
“The result is that individuals and family members are then in reacting mode to events and challenges as they unfold,” Dabu says. About 10 per cent of all Canadian families are blended, according to Statistics Canada.
Having appropriate controls and governance relating to the business is not only important but should be set in place “right up front,” she said, “because when you are dealing with a family business, it’s not so straightforward when there’s a dissolution of a marriage, especially when someone is still involved in the business.”
Human side is not always addressed
Dabu advises high-net-worth families that, from the beginning, clarity about their shared values is crucial.
For Patricia Saputo, chief investment officer of her family’s holding company Placements Italcan Inc. and co-founder and strategic advisor at Montreal-based Crysalia, “that human side is not necessarily being addressed by financial firms, accountants, lawyers or notaries.”
To address that gap, she cofounded Crysalia, a Chief Learning and Development Office, with company chief executive officer Dr. Mark Auger earlier this year.
“It’s not just a question of having the right tools when the family itself doesn’t understand what it all means,” she said. “And how can you then protect that wealth, so you don’t just use that money to fund lifestyles, but for many different other things?”
Crysalia offers a suite of services built around facilitating a harmonious environment that empowers family members to become stewards of significant wealth.
In the same way a chief investment officer helps an enterprising family plan its investment strategies as market conditions vary, she said, “a chief learning and development officer is there alongside you as you move along the trajectory of your life. Every family member goes through a different journey and has different needs.”
Some family members need elevating
Auger compared the portfolio of a high-net-worth family’s financial and physical assets to a forest ecosystem, where each member has a mindset regarding its genesis and purpose.
“The fact that families break down is a predictable phenomenon,” he said. “To say that it won’t happen is naïve. It isn’t necessarily because of a conflict.
“Someone may reconstitute a blended family as a result of a death, or a number of other scenarios that puts one in this situation. So how do you essentially merge these mindsets into one that cohabitates with this pool of incredible resources, which can define or restrict the opportunity-set for this family?”
Because not everyone has the same voice or even a vote on family matters, he added, tensions can arise. “And tensions that are not addressed emerge into disputes. So our job is to elevate each individual – equally – within the family, to not create further fault lines.”
Any framework addressing overall risk management should look at family relationships and consider potential divorce or step-families.
Bring up ‘what-ifs’
You want clients to be educated and potentially prepared, said Shelley Forsythe, director of wealth strategies at CIBC Private Wealth Management. That means giving them a broad spectrum of what-ifs, she said.
“Because sometimes they haven’t really thought about it, about how this could actually affect them from a family business perspective or from a family perspective. And it always means getting to the core of what matters to them and what resonates with them.”
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Every family is different, she said. “Sometimes the family will say, yes, I want to protect against this. Then there are others who say, ‘I don’t want to go there because family harmony is more important to me than drawing up a legal document on cohabitation, or a prenuptial agreement.’”
That’s why having regular “temperature checks” is important, she added.
“Our role as advisors is just that, to be advisors and to make sure we have regular reviews to bring up these potential risks to see if they have changed over time … to make sure they’re looking at that bigger picture and understand the risks of the what-ifs.”
No one wants to think about the worst-case scenario, said Dabu, “but it’s our job to say, ‘What if this happens? What is the most important thing for your family over the short, medium and long term? And what are we going to put in place to protect your vision, your legacy, those assets and those relationships?”
Otherwise, she added, “the worst that can happen is significant assets moving away from that business as a result of breakdown.”