To understand how this example relates to families, please see MARRIED COUPLES and COHABITING COUPLES then match the differences to the discussion below.
David and Bruce run a small engineering company in partnership. They started the business out of their redundancy packages two years ago to manufacture rotary oil pumps. They have no formal partnership agreement – they trust each other and have always got on.
David signed a major contact three months ago that will keep the company going for the next five years. On the strength of this, they just took on four new staff and an additional factory unit. They borrowed £350,000 against the value of the contract and the value of the firm at £1.5M.
David (41) is married to Janet with two children of school age. Janet helps out with accounts. They have a standard family Will leaving everything to each other. They arranged this before going into business.
Bruce (39) lives with his life-partner Jane who helps out in office admin. She is previously divorced and has a son of the previous marriage. She is expecting their own child in two months. They do not have any Will.
What David and Bruce didn’t know was…
In Wills and Estates in business, a little knowledge is a dangerous thing. What appears simple on the surface may not always be so, when examined up close. David and Bruce’s assumptions and analysis are flawed, with contradictions throughout their calculations and ideas.
David and Bruce were so focused on the business that they did not get to sorting out the legal matter of partnership and business succession in the event that one of them died or was no longer a viable entity in the business.
The situation for them is both intricate and critical together. If one of them should die, then the debt on the £350,000 is due immediately, because they would invoke the Partnership Act statutory rules for trading companies. This is much the same situation as having died without a Will in place. Only even worse. And because the loan is secured on the future business and properties, everything would collapse financially, amongst other repercussions.
Because the surviving spouse/partner feels she has a claim against the business for her share of the business, she will very likely demand to be a partner, and if not, then sue the other partner for lifestyle funding, and the whole matter will go before a learned judge and cost most of the assets to sort out.
This is a HIGHLY SPECIALISED area of inheritance law. The good news is; that Edmunds and Eve will ‘sound-out’ all the business and family matters and set up a Will Plan where all concerned are content. It would avoid a court battle over the scraps and save a huge pile of money and stress.