Owners sign buy-sell (or business continuity) agreements and rely on them to protect their families’ financial security should they die or become disabled. That reliance may be justified when owners periodically update the terms of those agreements for changes in business ownership and value. But relying on an “old” agreement can have consequences that owners would never have intended—as it did for fictional owner Matt.

“Midge” (not her real name) arrived in our office shortly after the death of her husband “Matt.” Matt had owned a construction firm with a partner “Elmer” for twenty years before his death in a freak accident.

“I want you to help put my affairs in order,” Midge said. As part of that process, we asked to see Matt’s company’s buy-sell agreement. When Midge delivered the copy that she’d finally found in the bottom of an unused file drawer, we learned that the company’s attorney had prepared it ten years earlier. From what we could tell, the agreement had never been updated.

Soon after our first meeting, Midge received a check from Matt’s company for far less money than she expected. “What’s going on here?” she asked. “Matt told me that the company is worth much more than what Elmer is claiming.” Midge was correct, and so was the check. The construction company had grown significantly over the past ten years, but the amount she received was calculated according to the agreement that her husband had signed.

“This is just pennies on the dollar and there’s no way I can live on this!” Midge objected. “I’m going to have to sell our vacation condo, aren’t I?”

“Well, you will have to cut back,” I agreed. In a sense, Midge was lucky. Had Matt been younger when he died, Midge might have had to pull her children out of private schools or sell her then-mortgaged home. But Midge didn’t feel lucky. She was angry. “I’m going to sue.”

“Before you do,” I advised, ”why don’t you talk to Elmer?”

Midge did meet with Elmer. He told her that both he and Matt assumed that having a buy-sell agreement was enough. He said that if he were to pay her more money, he would have to consider selling the company. “That’s not going to happen,” said Elmer. “Especially not since the company is without both Matt and now one of our key employees.”

Midge’s next call to us was to ask for the name of a business litigation attorney.

Whether she hires an attorney or not, Midge was going to pay a high price for her husband’s faulty, but very common, assumption. Too many owners assume that since they’ve signed a buy-sell agreement their businesses and family are protected.

Protect your family and your business. Protect yourself should you be the remaining owner. Pull out that buy-sell agreement. Set up an appointment with a business planning expert, preferably someone with a Certified Exit Planner designation.

During your meeting, expect to be asked about your business, its operations, ownership structure current value and estimates of future performance. This expert should conduct a thorough review with you and explain your options. Once you’ve decided how you want your company’s buy-sell to work, that planner can provide drafting guidelines to your business attorney.

Patrick Carroll, CFP®, CExP™  is the founder of Obsidian Business Solutions, author of Tame Your Money Elephants (Apple Ridge Press, 2016) and creator of The Lifestyle Protector Process™. He helps business owners grow their companies and meet their post-business financial and life goals. You can reach him at patrick.carroll@obsidianbusinesssolutions.com or 301.990.1165.