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I had occasion recently to think about the very human desire that people often hold - to continue to control or exert an influence over events and businesses after they have retired from day to day operations.

This often seems to be a desire in family businesses and can have significant consequences in the process of succession planning.

Very often the succession plan revolves around ensuring that:

  • The farm remains in the family, with a view to it being passed to succeeding generations.
  • Succession is not disrupted by matrimonial disputes somewhere in the family line.
  • The retiring family members being able to receive an aged pension.

Many people looking to impose these sorts of restrictions on the next generation may have had similar restrictions put upon them when they were young.

These issues are charged with emotion in any family business, whether it is a city based business or a family farm. Whereas a salary earner may lose a share of his/her accrued assets, in the case of a farm or a small business, a party’s occupation and lifestyle will be a risk as well. But the non-farm spouse may have given up an alternative career, and may have the care of children for many years, depending on custody arrangements.

Clearly, there are a number of restrictions which arise in trying to achieve all of the objectives, and a fair and reasonable balance between the different competing legal interests and desired outcomes.

The law has developed rules which limit the restrictions and terms which can be imposed by a person transferring property, whether under the terms of a will or otherwise. If a term of such transfer unduly restricts the freedom of the recipient of the property to sell or transfer the property, then that term may be invalid. There were a number of early and obvious examples. In one case, a father sought to impose a term which required his son to re transfer property if he should marry a Roman Catholic. In another, a similar transfer was required in the case of a divorce. These were ruled to be invalid. More subtle conditions might require an owner wanting to sell to first offer the property to another party at a considerable undervaluation.

The rationale behind the rule is that the law will invalidate a term which has the effect of sterilising the land or rendering it unsaleable.

There is insufficient space to discuss the very broad powers held by the Courts under the Family Law Act to look past arrangements that may have been put in place to limit the assets available to be claimed by a spouse seeking to leave the marriage, and the family business. It is enough to say that there is no simple means to achieve these objectives.

Some property holding structures may involve the continued holding of some degree of control over a farming property or businesses. This may lead to the value of that property or business being deemed to be an asset of that person who might then lose the possibility of Centrelink payments.

Succession planning is much more likely to be successful if it is undertaken in circumstances where all the parties to the process have contributed to the discussion and agree with the outcomes. It is in this context that both specialist legal and accounting advice is vital to ensure a workable ongoing result that is more likely to stand up to close scrutiny. It may be that there is a need for separate advice to some family members.