March 6, 2013

Business and partnership issues on divorce

It is often the situation within partnerships and businesses, particularly in farming partnerships, for an accountant to advise that a farmer’s spouse or partner should be employed in the business to take advantage of tax breaks. That person never actually works in the business but receives a salary. There is usually no employment contract and it is understood by everybody that this is being done to benefit the business and save tax.

However, when the relationship breaks down, little thought is often given to the actual legal consequences of the partner/spouse’s position. They are legally employed by the farming business and receive a salary for doing nothing. That is the terms of their employment. The farmer needs that person to resign from the business and agree not to take a further salary or make any potential claim. Often the spouse or partner does not wish to do this – they are quite happy to be paid for doing nothing! As are we all!

It is very important that you seek advice about having a partner or spouse in the business before anybody joins a business when things are going well as when things are going badly there is often a lack of cooperation and breakdown of trust. It can be very expensive to buy a spouse/partner out of the business and you often need to go to the lengths of having a compromise agreement or compensation pay-out. It also gives the spouse/partner an advantage in negotiations over anything else such as capital or pensions. Careful thought needs to be given before anybody joins a business who is not fully and properly employed by it regardless of the tax advantages.

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