Managing Relationships (from a legal point of view) Part 6 By Peter Nevile

When is the Right Time to Make A Will?

If you think now is a good time to put off making a Will, putting in place Enduring Powers of Attorney or thinking about that business structure you presently have in place then think again.

The sad event recently of the death of Michael Jackson is a brutal reminder that we are all mortal and that as much as we want to control our destiny, fate frequently intervenes. I suggest you refer back to several relevant articles which are available on the Entre Nous Website.

The break up of a relationship can come just as unexpectedly and while not quite as terminal can often be life changing.

While I am not advocating that you start to plan for the demise of your relationship at the same time you are smitten with the first blush of love, lust and romance, simply be aware of the ever increasing transitory nature of our lives and statistically our relationships in general.

If it does occur then take heed and store away in the back of your mind or keep a copy in your personal file of some of the issues we are looking at month by month. If, luckily for you there is no need, then I have no doubt you will have a friend who does.

In the last article I spoke about Infections, Quarantine and a Simple Way to Minimize Risk which followed on from STD's and how not to catch them. In this article I will look at some commonly held business structures you may be involved in now or in a new relationship and some suggestions on how to minimize the risk to which you may be exposed.

Sole Trader is where you operate a business in your own name. If you operate in any other than your own name then you are obliged to register a business name.

However you remain personally responsible for all debts and obligations of the business however they arise and all of your personal assets are available to satisfy a creditor including your house should it be in your name.

This is a very common way for small businesses and particularly tradesmen to operate. If you are in a relationship with a person in this situation and you have any joint assets such as a house or joint bank accounts I suggest you immediately look again at the previous article on quarantining assets and do something about it. Now!

While there may or may not be a valid insurance cover in place it is not worth risking the joint or family assets. Mistakes happen.

Partnership is where you are carrying on a business with another one or more people in common with a view to making a profit which can also include losses.

Whether or not you have a written agreement, which I would always recommend, you are governed in Victoria by the provisions of the Partnership Act.

Many small businesses including husband and wife and de facto relationship businesses operate this way as a simple and effective way of splitting income. However you should be aware of the dangers of partnership.

Emotionally significant relationships, of more than one night, and the consequences that can flow can be difficult enough. However they pale into insignificance compared to your potential liability as a partner in business.

You, a partner, can be personally, completely and totally liable for any debts and obligations of your partners.

There are some legal niceties as to the respective liability and obligations between the partners and some limitations on debts being incurred on the ordinary course of the partnership.

However the responsibility you can face on behalf of your partner can put all of your personal assets in jeopardy.

No point trying to quarantine assets in this situation. Effectively you are a guarantor of your partner. Remember the old saying "a guarantor is a fool with a pen" Banks love guarantors. That should give you a clue.

You need to consider either changing your structure or at least holding your assets in another legal entity. A trust and there are a number of types or a company may be appropriate subject to a number of factors.

The basic point is always separate as far as possible your assets from your potential risk. Anyone who can guarantee they do not make mistakes or can predict the future will be far too much trouble as a partner in any event and you are best rid of them.

This is an area in which you should definitely seek advice from both your legal and tax advisers.

The comments above are to raise issues and do not constitute legal advice. The information cannot be relied upon in making an informed decision. Legal advice must be sought.

Peter's law firm, Nevile & Co, offer a brief initial consultation at no charge to clients of Entre Nous to discuss any of the issues raised in this or subsequent articles and also matters relating to business commercial matters, property and intellectual property. He may be contacted on 9664 4700 or nevileco@nevile.com.au


Nevile & Co. Solicitors
Level 11, 100 Collins Street
Melbourne VIC 3000
(03) 9664-4703

Keywords: partnerships, relationships, legal niceties, liability, partnership