Partners in Love, But Not Business?

By Nina Kaufman, Esq.

My husband’s birthday is just around the corner, and I was thinking about how amazingly supportive he has been through the trials and tribulations my business has seen over the last five years.  He’s been my #1 fan.  Part cheerleader, part therapist, part mentor, part mastermind, part cattle prod (as in “don’t you think it’s time you got off that computer and went to the gym?”), Joe has been a vital part of my company . . . even though he’s not an owner.  For all that he does, I can put up with the Mets and the Giants. 🙂

So I had a little chuckle when I came across Dr. Gail Saltz’s column, advising a man whose fiancée excluded him from her startup.

Seems he supported her and her two daughters when she lost her job.  She got a part-time job, and promptly lost that, leaving him to support the family alone.  The fiancée then got all excited about an Internet business, and the man helped her by paying off all the expenses she racked up on her credit cards to get things off the ground.  One day, the fiancée comes through the door, smiling brightly because she’s so proud of the papers showing the new LLC she formed for her business.  The man’s name is nowhere on the papers.  He’s peeved . . . and perplexed.

I’m not saying that the fiancée had an obligation to name her intended as a business partner.  She may have valid reasons for not wanting to share the ownership.  But, as Dr. Gail points out, the essential ingredient missing here is communication.  I think she had a moral obligation (because of the relationship and the money she accepted from him) to let him know of her plans beforehand.  Aside from the “what was she thinking — is she just a selfish cow?” issues, her actions also raise legal and tax issues.  Here are just a few of the uglies that could arise:

  • He’s been paying off her credit card debt.  Because there’s no promissory note between them, it’s seen as a gift (not a business loan) and he never gets repaid.  And she loses the advantage of writing off the loan repayments for borrowed capital.
  • They get married.  The business takes off.  They get divorced.  He becomes entitled to a sizeable percentage of it (or its value) for having provided the start-up capital and supported her while she was getting the business going.
  • The business takes off.  before they get married, she dies.  If she has no Will, the ownership of the business might pass to her daughters, and the man will be bereft of all opportunity to recoup his investment.
  • The business tanks.  Because of the commingling of finances (his paying her bills), they severely diminish their opportunity to take business loss deductions.

I feel bad for the poor schnook . . . but he could have been more proactive in asking about her business plans.  In my book, love doesn’t mean you never have to say you’re sorry; love it gives you license to ask those probing (and uncomfortable) questions.

Want to learn more about Kaufman Business Law? This is the video to watch.