Court settles brothers’ dispute over partnership assets

When setting up a partnership it’s essential to have a written agreement outlining how the arrangement is going to work, even when dealing with close family members.

Failure to have a firm agreement from the outset can lead to problems further down the line, as illustrated in a recent case before the High Court.

It involved a dairy farmer who took on his 16-year-old son as a partner in 1989. They didn’t draw up a partnership agreement.

The father and his wife lived in the main farmhouse. A few years later when the son married, he and his wife moved into the next-door bungalow, which was on the farm land.

The farmer’s younger son joined the partnership in 1994 but, again, they did not draw up a formal agreement.

The father died in 2003, leaving all his estate to his wife.

The brothers fell out and dissolved the partnership in 2016. The younger brother claimed the farmhouse and the bungalow were partnership assets; the mother and elder brother insisted they were outside the business and owned by the mother since the death of her husband.

The court found in favour of the mother and elder brother. It held that if the farmhouse and bungalow were to become a partnership asset, it would have happened when the father and elder son first went into partnership.

However, there was no evidence to suggest that had happened and it would have been unusual for the father to allow the farmhouse, which was his home, to become a partnership asset and for him to give up absolute control of it in that way.

Considering the evidence, the father had not ceded control. Neither the farmhouse or the bungalow was partnership property and remained the property of the farmer’s wife.

The matter may have been resolved eventually, but of course it would have been far more straightforward and prevented a great deal of family heartache if the status of the properties had been outlined in a partnership agreement at the outset.

Please contact Jon Alvarez if you would like more information about legal issues relating to partnerships.