What’s really going on around family wealth?
The term family dynamics is used by family wealth advisors more often than it is explained. Usually they use it to mean things that go wrong in a family due to personalities, relationships, and interactions.
I’ve heard many advisors say, “Things fell apart because of family dynamics.”
Well, which family dynamics? What does “family dynamics” even mean?
Experts do try to define family dynamics or, more specifically, family wealth dynamics. However, I have usually found their descriptions of family systems theory and so on too technical and a bit confusing.
So, I try to talk about family dynamics in ways that most of us understand.
Because family dynamics can be either a source of energy and support or conflict and pain for a family with significant wealth. Of course that applies to any family, but for a family of wealth the stakes are higher.
If you understand the dynamics that drive your family relationships and interactions, you can more likely maximize the support and minimize the conflict that those dynamics generate around wealth.
In this post I describe typical family dynamics. Here “typical” means that they are not pathological, unless taken to extremes. (I’ve deliberately omitted complications such as emotional or sexual abuse, substance abuse, and criminal behavior, which are atypical.)
Family wealth, or any jointly owned assets, can intensify and magnify negative family dynamics. That is why family governance practitioners and similar advisors work with their client-families to address those dynamics.
Here are five common family dynamics that often undermine long-term family wealth preservation:
- Parent/child favoritism
- Sibling rivalry
- Family factions
- Birth order, gender bias, and other issues
I briefly describe each of these family dynamics below and provide introductory tips on how to view and address them.
Whether or not you want to admit it, you’re likely to have a favorite child or children. This is natural. You might enjoy one child’s company or personality more than another’s or find them more sympathetic, understanding, or easier to know.
And this cuts both ways: A child will typically have a favorite parent, for similar reasons.
This doesn’t mean that someone loves a child or parent “more” than another one. Rather, it means that people get along differently and have different relationships due to compatibility and communication.
What to do? As a parent, avoid enabling or undermining a child based on favoritism or lack of it. After all, each of your children deserves your love and support. Allow for—and deeply discount—favoritism in financial and business decisions regarding your children. Also, bear in mind that relationships and feelings of favoritism will usually evolve over time.
As a child, realize that either exploiting a parent’s favoritism or fretting over the lack of it can distort your thinking and behavior. A major task of adulthood is to accept parents as human beings, and to place their influence in its proper place. Few things are more futile than trying to win a parent’s approval long after the possibility of winning it (and perhaps the parent) has expired.
Sibling rivalry: The first recorded murder in the Bible was Cain killing his brother Abel and, sadly, it’s all too believable. Sibling rivalry starts by targeting parental attention, time, money, and other resources (see favoritism, above). But it also usually extends into adulthood, where it can become an end it itself.
A first-born has a head start, but the baby often wins. Yet in family feuds winning can feel like losing. Many first-borns’ egos undermine them, and coddled babies may find independence elusive. Brothers have notorious difficulty getting along, and while sisterhood can be powerful, so can sisterly rivalries.
What to do? As a parent, be aware of the impact of sibling rivalry and how you may be fostering it. If you have two or more children, promote collaboration. However, realize that a certain amount of rivalry is unavoidable. So be certain to account for it when you make business or financial decisions that affect your children.
If you have siblings, realize that battles fueled by rivalry cannot really be won. Victory is Pyrrhic when you vanquish a loved one, even if it’s only someone you’re “supposed to” love. Look for the best in your brother or sister, and hope that they do the same for you (or just ask them to).
Family factions: Factions in a family can form along lines involving parents and children, siblings and siblings, cousins and cousins, and other combinations. They can arise from decisions such as marrying inside or outside the fold or remaining geographically near to family members or moving away. Sadly, they are almost inevitable in divorce.
Factions provide emotional support within the faction, but create conflict outside (and even within) it. Like partisan divides in politics, family factions exaggerate differences, demonize the other side, and fuel emotional conflict—often for economic as well as psychological payoffs.
What to do? Recognize factions in your family, particularly when children in the family business become “insiders” and the others are seen as “outsiders.” Don’t classify family members that way, or as givers or takers or doers or dreamers. You can often diminish the adverse effects of factions by getting members of opposing factions to work together on business and financial plans, policies, and projects.
However, everyone involved must both assume and exhibit goodwill (again, as in politics). If bitter factionalism persists, it’s usually best to sell the assets and divide the money. Trying to address factionalism in estate plans often sets conflicts in stone and erodes wealth in the long term.
Secrecy: Everyone has a right to privacy, but secrecy is another matter. What’s the difference? Privacy aims to keep your financial affairs to yourself. Secrecy aims to keep things, such as inheritance decisions or family business succession plans, which affect other’s financial affairs, from them. That’s unfair. It can hurt them. And it breeds resentment.
Disclosing decisions and plans that will affect others, even when it’s difficult, is only fair. Doing so enables family members to adjust their expectations, plan their futures, and make informed decisions.
What to do? Practice honesty and transparency around family business and financial matters. We usually tell ourselves that we keep our intentions secret to avoid hurting someone or to maintain control, when in fact we want to avoid confrontation. This goes for children as well as for parents.
Others have a right to know about decisions and plans that will affect them, whether you are a parent leaving a bequest or a child who has decided never to join the family business. An honest explanation of an unpleasant truth may at least preserve a relationship while withholding, misleading, or lying will almost certainly damage or destroy it.
Birth order, gender bias, and other issues: Each child in a family is in a sense born into a different one. Birth order drives certain dynamics and affects one’s family relationships. The gender bias that persists in most societies permeates many families. Other dynamics within a family stem from personality differences, varying interests, and differing levels of professional, social, childrearing, or other forms of success.
What do to? Be conscious of the different ways you may be treating your oldest, youngest, and middle children, and of how your own parents’ approaches have affected you. Be aware of your attitudes toward males and females, and adjust them accordingly. Acknowledge the dynamics fostered by family members’ differences, and other forces that can twist decisions in ways that jeopardize assets and relationships.
Awareness of family dynamics enriches your understanding of human motivation and behavior, including your own. You cannot do away with family dynamics, but you can modify them, particularly if your children are still young or dependent on you.
Regardless of your children’s ages and situations, consider the impact of family dynamics on your family members, and on their—and your—approaches to wealth and life. And be certain to allow for family dynamics in your own family wealth management and estate planning practices.