Header Ad Module

Collapse

Announcement

Collapse
No announcement yet.

Legal : Do rentals recorded in a 'partnership' actually belong to it?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Legal : Do rentals recorded in a 'partnership' actually belong to it?

    Just asking for a friend..

    Around 15 years ago, it was suggested to my friend by his accountant that he record his jointly owned rental properties under a 'partnership' tax number solely as a matter of simplicity for tax purposes. This way the gross returns of taxable profit could be allocated all together and distributed evenly to him and his wife.

    The accountant registered for a partnership tax number. The partnership was called B & L. Smith (pseudonym)

    Each successive year the properties were recorded as assets under the partnership number and the gross profits were distributed evenly to him and his wife to then pay tax separately. No legal transfers of the title deeds were made of any kind to the partnership. It was always understood that the properties belonged jointly to him and his wife not to the partnership itself . The title deeds of the properties did not mention the word partnership.

    Friend and his wife went onto purchase 2 more rental properties, making a total of 6 over the 30 years of their relationship. In essence it was a husband and wife relationship making the purchases.

    The couple split up.
    ​​​​Originally after splitting the wife wanted only 1 property sold and their was no mention of any partnership.

    My friend suggested a 50/50 split based on the premise of mutually agreed values, each person take 3 properties, but the lawyer acting on behalf of his ex wife then announced the partnership hereby dissolved and all 6 properties to be sold - her lawyer saying that the properties are regarded as belonging to the partnership itself and therefore by dissolving the partnership the assets would come under 'partnership law' and a forced sale can be sought by either party . The ex wife wants all 6 properties to be sold.

    Friend has replied that even though the partnership recorded the properties as assets they did not in essence belong to the partnership and instead belonged to the joint owners, being him and his wife.

    Surely the lawyer is incorrect? Their was never any transfer of assets recorded into the partnership and the sole intention of the partnership was for simplicity of tax as advised by the accountant at the time.

    Thoughts?

  • #2
    The lawyer is correct. There is no such thing as partnership. It's not like a company. The partnership is the partners in proportion to their partnership share.

    Comment


    • #3
      Originally posted by Judge View Post
      The lawyer is correct. There is no such thing as partnership. It's not like a company. The partnership is the partners in proportion to their partnership share.
      So are you saying the lawyer is correct and the act of dissolving the partnership, can then effectively mean that one party to the partnership can order the sale of all rental properties in it - even though the other party does not wish to sell their half ?

      Comment


      • #4
        That's exactly right. On dissolution of a partnership all partnership property is sold and funds are divided between the partners in accordance with their partnership shares. That's the default position. Unless partners can agree otherwise or there is a partnership agreement in place which says otherwise.

        Comment


        • #5
          Would there not be 'room' for one partner to buy out the other[s]? Much the same as one beneficiary buying out two sibling beneficiaries in order for the one to gain ownership of her deceased parents' home?
          Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

          Comment


          • #6
            That requires cooperation of the other partner, which seems unlikely in a bitter matrimonial where one partner wants to hurt the other no matter what. So you go to default position. Please do not treat this a prediction Peery. But you probably will.

            Comment


            • #7
              What i don't understand though is how can the properties can belong to the partnership when their was no transfer of title as such ? Their was no formal documentation that took place in this regard. The accountant simply listed the properties under the partnership each successive year tax returns were made. If they were no longer producing rent they could be taken out of the return.
              Another accountant confirmed to him that the properties do not belong to the partnership itself as the rates notices for each property do not refer to any partnership nor do the sale and purchase agreements.

              Comment


              • #8
                Partnership is not a legal entity. Nothing can belong to a partnership. Ever. Properties can bacome "partnership property" but they still belong to the partners legally. Your friend needs leal advice. I am happy to chat with you for free if you want. Send me your phone number.

                Comment


                • #9
                  Originally posted by mrsaneperson View Post
                  The title deeds of the properties did not mention the word partnership.
                  Whose names are on the CoT for each property?

                  Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

                  Comment


                  • #10
                    Originally posted by Perry View Post
                    Whose names are on the CoT for each property?
                    B & L. Smith {pseudonym} on some properties then on others its B.Smith , L. Smith
                    That is from the rates notices apparently .

                    Comment


                    • #11
                      In effect though the right for one person in a dissolved partnership to force sale of all properties is no different to the same right of a husband and wife having the same right to force the sale of any of their jointly held property portfolio. Correct?
                      The right to do this certainly can lead to gross injustice occurring as my friend spent his entire life building up the rental property portfolio and is now being excluded from being able to keep his fair share, simply from extreme bitterness being wrought upon him by his ex wife.

                      Comment


                      • #12
                        Originally posted by mrsaneperson View Post
                        In effect though the right for one person in a dissolved partnership to force sale of all properties is no different to the same right of a husband and wife having the same right to force the sale of any of their jointly held property portfolio. Correct?
                        The right to do this certainly can lead to gross injustice occurring as my friend spent his entire life building up the rental property portfolio and is now being excluded from being able to keep his fair share, simply from extreme bitterness being wrought upon him by his ex wife.
                        Are you sure of that? (I'm not.)

                        I do not think there is any specific legislative right to force a sale. However, a sale may be forced (for financial reasons) as a consequence of a break-up and any consequent 50% financial payout demand under the Relationship Property Act. [RPA]

                        I.e. Pursuant to the RPA, a claim that I want my half share of X, is not the same as saying X must be sold so that I can be given half the net proceeds.

                        Some deemed value for X should be achievable and if some form of finance can be arranged to pay out the 50:50 of that accepted deemed value, that should prevent all / part of any forced sale of the entire portfolio.

                        A family member was once in an analogous position. One half kept half the rentals; t'other half kept t'other half of the rentals That was a division of what rentals were left over after a few were sold to satisfy all the 50:50 per-party division requirements.

                        I suspect that Judge will have some further insights on this.

                        Irrespective, some good legal advice from a legal beagle who really knows their stuff seems essential.

                        Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

                        Comment


                        • #13
                          Section 84 of the Partnership Act:
                          84Application of assets




                          The assets of the firm, including the sums (if any) contributed by the partners to make up losses or deficiencies of capital, must be applied in the following manner and order:
                          (a)


                          in paying the debts and liabilities of the firm to persons who are not partners in the firm:
                          (b)


                          in paying to each partner rateably what is due from the firm to the partner for advances (as distinguished from capital):
                          (c)


                          in paying to each partner rateably what is due from the firm to the partner in respect of capital:
                          (d)


                          in dividing the remainder (if any) among the partners in the proportion in which they are entitled to share the profits.

                          Comment


                          • #14
                            Subsection (c) applies here. The wife gave a notice so partnership is dissolved. Assets to be distributed in accordance with previously noted section. Its open to for her to argue she does not want properties, she wants cash, as value of property if hard to determine until it's sold. There may be an argument against it, but a lawyer must have a good look.

                            How partnership may end 66Partnership dissolved at end of term, by end of venture or undertaking, or by notice
                            (1)
                            A partnership is dissolved,—
                            (a)
                            if entered into for a fixed term, at the end of the term:
                            (b)
                            if entered into for a single venture or undertaking, by the end of the venture or undertaking:
                            (c)
                            if entered into for an undefined time, by any partner giving notice to all the other partners of the partner’s intention to dissolve the partnership.

                            Comment

                            Working...
                            X