Church mergers are increasingly common, especially with the rise of the multisite model. While mergers can be strategic for growth, they also carry risks. If your board is considering a merger, it’s crucial to understand the legal and insurance exposures involved.

Key Exposures in Church Mergers

When a larger, established church merges with another ministry, it inherits both assets and liabilities. These liabilities can include:

  • Employment lawsuits from prior employees.
  • Abuse claims from former members or their children.
  • Claims of negligence by former leadership.
  • Other liabilities typically associated with ministry.

To protect the merged organization, leadership must understand the operational legacy of the acquired entity. This includes maintaining comprehensive records of:

  • Insurance: Ensure terms of coverage are clear.
  • Board History: Document board members, decisions, and historical bylaws.
  • Employment: Keep detailed records of past employment issues.
  • Defense Records: Maintain records to defend against potential legal claims.

A Real Example

Consider this real example of a thriving ministry with 4,000 attendees and $30 million in assets, formed through multiple mergers over 40 years. This church faced a significant lawsuit alleging abuse by a former youth pastor from one of the original churches. Lacking insurance, employment, and board records, the church settled for $3 million, with only $500,000 in past insurance coverage found through forensic work.

Essential Questions for Merging Churches

To avoid such pitfalls, ask these critical questions during the merger process:

  • Does the partner church have comprehensive insurance records?
  • What are the terms of their insurance coverage?
  • Do both churches have a history of Directors & Officers insurance coverage?
  • Do they have detailed board history and records?
  • Are employment records complete and up-to-date?
  • Do they maintain defense records for legal disputes?

Conclusion

Church mergers are a popular and effective growth strategy but come with significant risks. By conducting thorough due diligence and seeking advice from knowledgeable risk management professionals, churches can protect themselves and ensure a smooth transition. Properly managed, mergers can help churches flourish and extend their ministry effectively.