Managing sudden wealth: Key steps after selling a family business

You’ve worked to grow a successful business. When you’re able to sell that business to realize sudden wealth for you and your family, it feels very rewarding.

Psychologist Jim Grubman, Ph.D., has described this process for some as “immigrating into the land of wealth.”¹ As with a geographic immigration, a sudden influx of wealth can involve a myriad of complexities — financial, human, social — that if not proactively managed, can bring unexpected challenges.

“Often, there’s a difference between being wealthy on paper and suddenly having liquid assets to manage, such as when you sell a successful business,” explains Arne Boudewyn, Advice & Planning director at Wells Fargo Wealth & Investment Management. “When your family enterprise becomes a wealth enterprise, there is an economic transition that can bring unexpected challenges.”

Here, Boudewyn and Tracey Gillespie, national managing director, Business Owner Advisory for Wells Fargo Wealth & Investment Management, discuss the four steps for dealing with the emotional and fiscal factors of handling a sudden influx of wealth.

One: Hold off on any spending related to your sudden wealth

Both Boudewyn and Gillespie recommend entering a “decision-free zone” after a sudden wealth event. The idea is to avoid making any major changes in your spending while you determine what your financial needs will be going forward.

“For people who experience sudden wealth, there can initially be an aggressive spending year,” Boudewyn says. “This could lead to the diminishment of wealth relatively quickly, so we always say to delay gifts and track your cash flow for a full year. This can help give you experience with your income and expenses. If you make any changes, track them closely because that may become the new normal for you.”

That decision-free zone also gives you time to address subsequent steps.

Two: Take inventory of your new financial objectives

As a business owner, you could find that your personal identity is tied to your business, and the two could be difficult to untangle. Yet, that is what you need to do.

“Your business life and personal life are like overlapping circles,” says Gillespie. “When it comes time to sell the family business, you’re pulling those circles apart. If those circles have overlapped for multiple generations, pulling them apart becomes difficult.”

The pulling-apart process often starts with an assessment of your values. “Think about the money you’re going to receive,” Gillespie says. “What kind of meaning do you want to attribute to that money? What do you want to achieve in your family and your community? The answers can help inform the decisions you make. Having a vision of where you want to go can help you stay on track.”

Three: Include your family early in sudden wealth discussions

Managing sudden wealth well involves considering the ways in which the wealth will improve the lives of your family. Individuals react to this new status in different ways, so it is vital to involve family members in discussions about wealth early and often.

“It’s important to have those conversations regularly and frequently with family members around what you’re learning during this decision-free year, what you’re hearing, and what your concerns and hopes are for how wealth will impact the family,” says Boudewyn. “It’s a great opportunity to have really clear and consistent conversations as a family about what to expect, what not to expect, and what tools and guidance are available.”

A good financial education will help your family navigate the emotions and financial challenges of newfound wealth, and it could be a great catalyst for conversations about values and goals. If desired, professional advisors can help guide the discussion. See the next step for more reasons to team up with professional advisors.

Four: Create — and take guidance from — a team of trusted advisors

As you’re determining your vision for your financial future, it can help to have input from a range of professional advisors. Their specific experience could help guide your decisions as you consider the long-term wealth-building needs of your family going forward.

“One key person is a wealth planning advisor,” Gillespie says. “They can be your lead strategist for helping you understand your objectives, your priorities, and whom you want to benefit from your wealth. Along with that person, your team should include a financial advisor, an insurance advisor, a tax advisor, and a legal advisor. It could seem like a lot, but you need a team of people, not just one person, because you want to create a comprehensive plan for your wealth.”