A recent case has illustrated that a lack of formal agreements regarding the ownership of assets is a proven recipe for dispute when a relationship breaks up. It involved a couple who ran a frozen food business and lived together in a property in London.
The business had been set up by the male partner and, after the couple began to cohabit, the female partner worked in it. When he was made bankrupt, she took over the running of the business and employed her partner.
Some years later, she purchased a farm from her mother in her sole name, taking out a mortgage and withdrawing cash from the business to finance the purchase. Shortly after that, her partner set up his own company, owning all the shares. The company was run from the farm. The female partner later purchased another property, the borrowing for which was also secured on the farm.
The biggest bone of contention when the couple split up was over the frozen food business. The female partner alleged that it had been agreed between them (in 2007) that this would be transferred to the male partner’s company in exchange for a payment of £750 per week, in order to achieve a fair division of assets between them.
The male partner alleged that part of the £750 per week he paid was to fund the mortgage on the farm and that this gave him a beneficial interest in the property.
The judge in the lower court found that the male partner had an ‘imputed interest’ in the farm of 25 per cent and the company’s shares were held in trust for the two of them, with the male partner owning 65 per cent of the value and the female partner 35 per cent.
The female partner appealed and the Court of Appeal accepted that, in the absence of any agreement that the male partner should acquire any rights over the farm, no such rights existed. Similarly, in the absence of any agreement, the female partner owned none of the company.
It was reported that the judgment was highly critical of the decision made by the judge in the County Court, which made the appeal necessary. The net effect has been that considerable legal costs have been incurred which would not have been necessary had simple documentation been executed at the appropriate points over the years.
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