Q. I have decided to separate from my partner after about 4 years together. We're both in our 40s and we each came into the relationship with a house and some investments. I have a small consultancy business, with 6 staff.
My partner worked with us for a few months on an IT project but is not a staff member; she has her own successful career. However, she's determined to take half my share of the business when we split. This is totally out of left field – her work did not increase the value of the business at all, and while we did talk about the business a bit, she has had nothing to do with the actual running of it.
I don't even think she believes this is fair, she is just bitter with me. During the good months, I was very generous with the money from the business. What happens now?
A. Who owns your business?
Generally, when a couple separates, their relationship property is divided equally. This includes assets like the family home, family chattels and investments. A business set up or acquired during the relationship is normally relationship property too.
However, if a business is already established before the relationship, it's possible it can be classed as "separate property", which means one partner alone has legal entitlement to that property. This will depend on whether the business has been "intermingled" with the relationship.
Intermingling occurs when there is not a clear boundary between business matters and relationship matters. For example:
• if both parties contribute to the business either financially or in a working capacity;
• if you use business property such as the vehicles or premises in a personal capacity; or
• if the owner takes a smaller salary than otherwise would be expected. In this case, your partner could claim that the relationship didn't receive a reasonable portion of business income at the time, and now she needs compensation.
If the business is considered intermingled, then generally it will be halved in a separation like the rest of the relationship property. This can be the case even if you owned your business prior to meeting your partner.
Has intermingling occurred?
Your partner working with you is one factor that might indicate intermingling. It will help your case if she received market rates of pay during the time she worked there. A lower salary might indicate she was somewhat invested in the business.
Your salary is important too – if you paid yourself a market rate, which you could contribute to the relationship outgoings, then the business doesn't 'owe' anything to your pool of relationship property. You mention that you contributed a lot during your more buoyant months, but what
about months that weren't so good? It is difficult to say whether the business was intermingled, without knowing all these details.
When your business is part of your relationship property
If the business is considered relationship (rather than separate) property, you will own it jointly with your partner. In a situation like this, where one party is integral to the running of the business, you would normally buy the other party out. This can be as easy or difficult as your partner chooses to make it.
At the easy end, you could agree on a figure, and your partner will take this additional amount when you divide your relationship property.
In the worst-case scenario, your partner could hold out for an unrealistic amount, leaving you negotiating back and forth between lawyers, perhaps ultimately ending up in court.
When you're in a relationship of three years or more, your relationship property is generally halved when you separate, and this can include your business. If you don't want your partner to have a claim on it, then you need to keep it separate from your partner and your relationship. For absolute certainty, you should both sign a prenup agreement, which states who will have ownership of the business (and other property) if you separate.
If it does look like your business is relationship property, my advice is to deal with this as soon as you can. Put your emotions aside – easier said than done I know – and negotiate an amount to buy your partner out. You may need help from a professional valuer to settle on a price. In any case, do it quickly, along with settling the rest of your relationship property. When a settlement drags on, it costs you in legal fees and stress. Settling will enable you to move on with your new life both personally and professionally.
Do you have a family law question? Email it to firstname.lastname@example.org. Questions should not exceed 200 words. Please provide a phone number. Your name will not be published. Jeremy cannot answer all questions, correspond directly with readers, or give legal advice. Jeremy's advice is of a general nature, and he is not responsible for any loss that any reader may suffer from following it.
- Jeremy Sutton is a senior family lawyer, specialising in divorce cases where there are significant assets, including family trusts and complex business structures. www.jeremysutton.co.nz