The Ex-Files: Jeremy Sutton on dividing a joint business

Businesses are relationship property so need to be shared in a separation. Photo / 123RF

OPINION:

Q. My partner and I are separating after nine years together and are not on good terms right now. I have my own business which I started seven years ago. My partner had his own career but was made redundant three years ago. Since then, we have worked together in the business. My partner has been involved in the administrative side of the business, while I have been client-facing. He wants access to all the client files. I am very uncomfortable with this, mainly because confidentiality of my client's files is critical, and I don't trust my partner right now. My partner also enjoys the freedom of being self-employed and wants to continue in the business. I am not sure how to go about this, but I do not see that we can continue. How do couples normally handle this process?

I know that our financial situation will be more difficult when we are living apart, so I've been trying to cut down on expenses. However, I feel my partner is doing the opposite. For example, he is insisting on continuing with a very expensive leased vehicle, which I think is unreasonable. Is there anything I can do?

Your business

You are correct in saying you need to share your business with your partner. It is part of your relationship property and therefore he is entitled to an equal share of the business.

Valuing the business

There are several ways to value a business. You could each appoint your own valuer and negotiate the final amount using these values as a starting point.

Another option is to get a joint valuation, where you both agree on a valuer to carry out the valuation. This will be less disruptive to the business as you only need to go through the valuation process with one valuer and you can share the cost. If one of you doesn't agree with the valuation, that person can obtain another valuation, but they would need to cover the cost themselves.

Some couples avoid the valuation process altogether and agree on an amount, perhaps based on the business' last set of financial statements and advice from their accountant.

Confidentiality

To protect your business, I recommend your partner signs a confidentiality agreement, also known as a non-disclosure agreement (NDA). This is a binding contract, in which he agrees not to share or profit from any information, learnt during the valuation process, to anyone other than their advisers.

It should be signed prior to the valuation process and before he has access to any information about the business.

Working in the business together

I do not recommend that separated partners continue working in a business together. Working in a business together requires you to be able to make business decisions together. If you are not able to work amicably together, it will cause both of you unnecessary stress.

It could also cause a strain on the business if either of you enter into a new relationship.

My recommendation would be to purchase the other party's share in the business.

If you don't have the money to pay him out you could take a lower share of your other relationship property, for example your family home. If you don't have any other relationship property, then you could come to an arrangement such as paying his share by instalments over a couple of years.

If paying him out now or in instalments is not an option, you could consider some sort of commercial arrangement where he retains a portion of the business profits for a period of time. You could work with your commercial lawyer to ensure that you are able to pay your partner out in a way that does not hamper your ability to make business decisions on your own.

Financial issues after separation

You and your partner remain financially entwined until you have signed a relationship property agreement or court resolution.

This means you continue to be equally responsible for any relationship debts and maintenance of your relationship property. Your joint financial responsibilities do not end at separation.

It is good that you've considered your financial situation after separating. Some people are unprepared for the challenge of having to cover household expenses on one income that would normally be split between two. It is possible that your partner hasn't given much thought how he will manage financially and how his spending will impact you both. Explain your concerns to him and discuss what you'll each likely end up with in terms of assets, income and expenses. He might see his spending in a new light.

The leased vehicle

Review the contract for the leased vehicle to see what the minimum lease term is and whether there are any early termination charges for returning the vehicle early. These will need to be factored into your relationship property split.

Conclusion

There are several options for agreeing on the value of your business and you should take steps to ensure your business information remains confidential before starting this process.

You are going to be affected by your partner's spending until you have finalised your relationship property, so I advise you to do this as soon as you can. It might be better to compromise on the value of the business to enable a quicker settlement. That way you can both move on with your lives.

Do you have a family law question? Email it to js@bastionchambers.co.nz. 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.