Survey of Arts Management

Course blog for American University PERF-570, Fall 2014

Who Owns a Nonprofit?

I’ve been saving several cool articles to share on this blog, but in light of our conversation yesterday about who owns a non-profit, I’d like to share this article from Nonprofit Quarterly.

In class, we talked about the example of an arts organization, such as a Mark Morris, Alvin Ailey, or Martha Graham that’s started by a founder with a vision, and usually has a large group of supporters. What I think is a more interesting aspect of this, and much more convoluted is family foundations. I previously worked for a family who had a family foundation. They earned a substantial income, and wanted to do good in the world in a tax-efficient manner, so set up a foundation, asked a couple friends to be on the board, and set about supporting causes they cared about. And then the husband and wife got divorced.

As we discussed, the IRS only requires that a nonprofit have 3 members of the board, and that the money doesn’t “inure” to the benefit of the directors. This foundation was well within those parameters. However, when it came time to divide assets, there was a serious question posed: Even though “nobody” owns the foundation, it was made up of money that otherwise would have been part of their marital estate, and thus – potentially subject to distribution. The legal teams on both sides knew we didn’t want to spend a decade appealing this, so we came up with a creative alternative.

However, this sort of thing happens fairly often. In fact, here’s a quick review of an interesting case that I’m familiar with that lasted for over a decade.

 

 

Photo credit: journeybeyonddivorce.com

 

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4 comments on “Who Owns a Nonprofit?

  1. qfloyd
    September 10, 2014

    The article about the Maddox Foundation(s) is like a messy soap opera. In the crazy world of not-for-profits, it still plagues my mind that no one actually owns it. In these instances, you have to go through legal matters to even get things situation in the eyes of the law. The death of the Maddoxs was unfortunate but their organizations both helped their community and the fact that the laws in Mississippi differed from the laws on Tennessee, hence the step-granddaughter trying to take control of the company, created a large amount of chaos.
    Being that I want to own my organization, I would have to make sure that every “I” is dotted and every “t” is crossed. I do not want the my future children or board members fighting about what is right/not right about organization once I am gone.

    Side comment: The first link about the married couple divorcing didn’t work.

  2. benjamendouglas
    September 10, 2014

    Oops! Thanks, Quanice. The link is fixed.

  3. benjamendouglas
    September 10, 2014

    Also, crossing i’s and dotting t’s is a good start, buuuut I think that, other than constant, open, healthy communication, there’s little way to foresee a potential future disagreement about artistic vision.

    One thing I strongly recommend is that you go in with an exit strategy. If “one” thoroughly communicates their vision, and puts the necessary resources in place, there isn’t a soul on the planet who is so necessary to the process that they can’t eventually put someone else in place to take their vision and run with it.

    You know the old thing – “give them roots and give them wings?” Well… that applies here, too.

  4. Jenni
    September 11, 2014

    This is so interesting! I think Ben is hitting on a good point. It really should just be best practice to go into building a business model and market strategy with these kind of problems in-mind. I never really thought about how a divorce could affect a foundation, or how a company’s move could affect the state it moves from/to. It’s really important to know, or at least seek the counsel of someone who knows, what the legalities are and what protections should be put into place in order to keep things running smoothly if unexpected issues should arise. Especially in the case of nonprofits, you can’t leave your company dangling at the ups and downs of your personal life, or at least I would think that shouldn’t be the case.

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