In a recent case a payment of $8 million made in exchange for a restraint of trade covenant was held not to be relationship property. That case is now on appeal to the top court in New Zealand.

The parties separated and then divorced four years later. A year after the divorce, the ex-husband entered into a restraint of trade worth $8 million, which prevented him from using his skills and contacts in competition with a company for five years, across an extensive geographical region.

The ex-wife argued that the $8 million was relationship property. The Court of Appeal confirmed it was the husband’s separate property and not up for division in the separation.

The Court of Appeal found it relevant that:

1. The restraint was entered into five years post-separation;
2. The parties had sold a business for more than they otherwise would have because the ex-husband had agreed to the restraint of trade;
3. The restraint could not be characterised as business goodwill, but was instead a payment in exchange for the ex-husband restricting his use of his personal attributes and personal goodwill in the future;
4. There was no element of principal’s goodwill to be taken into account on the facts of the case, and there was no suggestion that the payment wrongly transferred property from the business into the ex-husband’s hands.

Leave has now been granted for the Supreme Court to hear the case.