Protecting your business from a relationship breakdown

Karl ran his own IT business for ten years before meeting Jackie.  They began living together in a de facto relationship in 2008.

When they met, the business was doing well enough to be running at a small profit.   Jackie was an accountant with an IT background and was able to help Karl better manage and improve the profitability of his business.  With Jackie’s efforts and guidance the business substantially increased its profitability and value during the relationship.

In early 2014, Jackie and Karl separated.  Following their separation, Karl knew that Jackie would be entitled to a half share in the home they lived in as well as half of all the chattels in the home.  However, he was not prepared for the fact that Jackie could also make a claim in respect of the amount the business had increased in value by during their relationship.

Jackie had contributed her time and efforts to the business (for example, spending time doing the books for Karl, website design and providing business advice) and was able to claim that those contributions had assisted in increasing the value of the business.  As such, she was entitled to claim an interest in that increase.

The increase in value of the business was valued at $200,000.  Based on her contributions, Jackie’s entitlement was assessed at 40% – she was therefore entitled to receive $80,000.00 from the increase in value of the business.

Karl said that if he had known Jackie could claim an interest in the increase in value of the business, then he would have taken steps to protect the business as his separate property.

If agreed, Karl and Jackie could have entered into a Contracting Out Agreement earlier in their relationship to record that the business, and any increase in value of it, would remain Karl’s sole and separate property.

Both Jackie and Karl would have required independent legal advice to enter into such an agreement and any agreement of that nature would have to be in writing and signed by each of them with their independent lawyers.

If you would like further information about protecting your property and/or about Contracting Out Agreements, contact us on (04) 473 6850.

Please note that Rainey Collins is not contracted to provide Legal Aid, other than in the Treaty of Waitangi area.  We therefore are unable to take on any Civil or Family Legal Aid work. If you require Legal Aid in those areas, you can search the list of Legal Aid lawyers on the Ministry of Justice website.