Introduction

What happens if you spend countless unpaid hours of unfathomable boredom and frustration doing the GST returns for your husband's business, only to have your marriage end (perhaps because those very same returns have understandably driven you to the edge of despair?) How can you protect your financial interests if you are providing professional services, whether they be accounting, legal, marketing or otherwise, to or for your husband's or partner's business but aren't being paid for them? (For ease, we will just talk about a husband).

Of course, the most obvious answer is that you should always charge for your services. But that may also be the least realistic answer. There are many reasons why you mightn't do this. It may well not enhance your relationship if you demand payment for professional services that your husband thinks should be rendered out of the goodness of your heart. It may be that you believe that you will in due course enjoy the fruits of the business anyway and therefore you will be indirectly compensated for your contributions, and, especially if the business is fledgling, it may simply not be able to afford to pay you. Or you might not even think about any of this in the first place.

Property (Relationships) Act 1976

If you're not going to charge for services you provide to your husband's business, you should be asking yourself what rights you would have to share in that business if you separated. Of course, no one plans for a relationship to break down, but it is prudent to think about what would happen if it did. And that is where the Property (Relationships) Act 1976 comes into play.

Under the Act, all property owned by either or both of the partners in a relationship (a marriage, a civil union, or partners to a de facto relationship) that has lasted for more 3 years, and in some cases less than that, is classified as either relationship property or separate property. The basic rule is that all relationship property will be shared equally when a relationship ends (either by separation or by the death of a spouse or partner) and all separate property will continue to belong to the person who owns it. So it's vital that you understand whether "your husband's business" is separate property or relationship property or neither? (How can it be neither? Answer: if the business was owned by a trust. We'll explain that a bit later).

Is "your husband's business" separate property or relationship property?

Remember that "relationship property" and "separate property" refer to the status of property under the Act for the purpose of the division of property on separation or death. That status does not tell us anything about ownership and is not necessarily dependent upon ownership. So for example, even if the business is "his" (ie. your husband owns all the shares in the business) it could still be relationship property and therefore subject to equal division on a separation.

To work out whether the business is relationship property or separate property you may need to get specialist advice, but there are some guiding principles that can help you:

1. If the business is owned jointly or in equal shares by both of you (eg. equal shareholdings in a company), it is relationship property. But let's assume that that is not the case.
2. If the business was owned by your husband before the commencement of the relationship, then it is probably his separate property
3. On the flipside, if it was acquired by your husband during the relationship, then it is likely to be relationship property. But as is always the case with the law, it is not that black and white, and there are some important exceptions to this rule (and exceptions to those important exceptions, which we won't go into):
   • If the business was acquired from a third party's trust or as a gift or inheritance, it is probably separate property. That would be the case if, for example, your husband had inherited his parents' business.
   • If the business was acquired out of the proceeds of, or income or gains derived from, separate property, it is also separate property. So if your husband established or acquired a business during your relationship, but financed this from the sale of assets he owned prior to your relationship, it's still probably separate property.

Ideally you want the business to be relationship property so that on a separation, it would be divided equally (subject to certain limited exceptions). That of course means that you will have indirectly reaped half the rewards for the services you have provided.

If, however, the business is your husband's separate property, then you might still have certain rights under the Act to be compensated in respect of that property.

Your rights if your husband's business is separate property:

1. If, through your actions, you have contributed (even if just indirectly and partly) to an increase in the value of your husband's separate property or any income or gains derived from it, the Act provides you with a remedy. The increase in value or income or gains will be shared according to the respective contributions you and your husband have made to the increase in value or the income or gains. This means you should keep track of the hours and work you have undertaken.
2. This very important provision of the Act has most commonly been applied to farming situations, where for example the husband owned the farm prior to the marriage but the wife has worked on the farm. However, the full extent of its potential is only just being realised. Just recently, the Supreme Court applied it where the wife did not even work on the farm, but had undertaken "all domestic duties expected of a farming wife" as well as applied her earnings from her sales job to support the household. By doing that she had freed up her husband to devote labour and money to the farm and had therefore indirectly contributed to an increase in the value of the farm. The court noted that the farming business was effectively the husband's job - the means by which he earned his living to support the family - and not just a passive investment from which he earned some income.
3. We are not aware of this provision being applied in a professional setting, but it will be a very powerful ally if you have assisted your husband in growing his business by providing services to that business and/or if you have stayed at home taking primary responsibility for managing the household and caring for the children.
4. If you can also show that, in addition to contributing to an increase in value in your husband's business through your actions, there is also likely to be "economic disparity" between you and your husband, the court can make a broader range of orders to compensate you. Economic disparity exists where, because of the effects of the division of functions within the marriage, the income and living standards of your husband are likely to be significantly higher than yours. That might be the case if you have given up paid work for some time and/or cut back your hours to raise the children.
5. Even if the business has not flourished and grown in value, you may still be able to be compensated for "sustaining" your husband's separate property through your actions.

Trusts

As we mentioned earlier, it is possible that the business is neither relationship property nor separate property. That would be the case if the business were owned by a trust. With trusts, the Act does not provide for how the assets would be dealt with on a separation because neither you nor your husband owns the trust assets in your own right. Hopefully it is a trust that you and your husband established together and you have equal rights under the trust deed. The trustees should then consider how to deal with the trust property in accordance with the trust deed and trust law.

If, however, your husband established the trust and he "controls" it (particularly by being able to appoint and remove trustees), even if you are a trustee, you don't even have the rights we discussed above that you would have if the business were your husband's separate property. You may still have limited legal recourse, but this is beyond the scope of this article. Suffice to say that, if your husband is considering transferring his business to a trust, you should obtain independent advice to find out what your legal position is and should be.

Final thoughts

Finally, the best way to protect yourself and your financial interests at any time is to enter into what's known as a "section 21 agreement". This is basically a "pre-nup" but you can make it during a relationship or marriage, not just before. Such an agreement sets out the details of how assets would be shared on a separation, and, whilst it's not a pleasant process, it is the best means of providing you with certainty about your position should the unthinkable happen. These days, they are far more common. If you have a section 21, hopefully you will file it in your bottom drawer and never look at it again.

Acknowledgement

Juliet Moses is a partner with boutique law firm Taylor Grant Tesiram. The firm specialises in trusts, personal asset planning, relationship property, superannuation and succession, and Juliet provides advice in all those areas. She is also the mother of two young boys and, with the assistance of her trusty Blackberry, works part-time.
She can be contacted on (09) 920-8680, or juliet.moses@tgtlegal.com.