“Fair Buy-Out Price of Business from a Widow”

Issue:
What is the fair buy-out price of a widow after the untimely death of her husband?

Arxis Work:
We met with the business partner of a man who had died an early and shocking death. There were several factors that made the meeting and situation that much more difficult. First, his business partner was his brother. Second, his brother had died right in front of him, his wife, and his children in a boating accident. All the nieces and nephews were present and were greatly traumatized. Third, the family was close. The two brothers had been inseparable and their respective families followed suit.

The brothers were partners in a struggling personal service business that was very dependent on the skills, knowledge, and relationships of both partners. Historically, the business supplied a livable salary to each of the brothers. In short, the death of one of the partners meant the loss of half the business. There was no plan for the death of a partner – no life insurance, no shareholders agreement, and no buy-out plan. For the widow and her family, it also meant the immediate loss of income – the ability to pay bills.

The estate/corporate attorney contacted Arxis with a request that I assist the parties in arriving at a fair price for the surviving brother to pay to the widow for her share of the business. By most definitions there was no value. Or, if there was value, it was minimal. However, the surviving partner knew all his brother left to his family was whatever he could pay for his share of the business. He knew the business had no value beyond the salary he earned but he wanted me to define and quantify some basis for a buyout so his sister-in-law would not feel like it was charity and also feel like the price was fair.

Result:
Arxis worked off of an assumption that the standard of value was “fair value” meaning that there were no discounts for control or marketability. An analysis was done to determine how much the surviving partner could afford to pay over a period of time assuming some growth and cutting overhead. The value was agreed to and the surviving partner worked for several years to support both families. It is doubtful that the surviving family will ever fully understand the sacrifices he made to provide them a “fair” value. It was a difficult assignment for Arxis. However, it allowed us to assist a remarkable man serve his distraught and needy family.