Where
business assets are relationship property, any payment received for a restraint
of trade on the sale of those assets is also relationship property to be split
50/50. The Supreme Court extended this
rule to situations where business assets held in a family trust are not
relationship property but by agreement treated as if they were.
At issue was eight million dollars paid
separately to Mr Thompson on a 2006 sale of the Nutra-Life health food business
then owned by a family trust: MLT Trust.
Next Capital Health Ltd paid MLT Trust $72.3 million: $22.9 million for
its tangible assets and $49.4 million for business goodwill and brands.
The marriage of Mr & Mrs Thompson ended in
2002. In 1994, their health food
business had been sold to a family trust.
At law, the business assets were no longer relationship property. They were owned by another entity: the MLT
family trust. The general rule would be
that the $72.3 million received by the MLT Trust on sale of the business would
not be relationship property and neither Mr Thompson nor Mrs Thompson would
have any rights beyond the interest they might have as a beneficiary of the Trust.
The Supreme Court was told the Thompsons
treated the MLT Trust as if it were relationship property. This was evidenced by how the trust operated
and by statements made by the trustees that each was entitled to a half share
of the net worth of the Trust.
At issue before the Supreme Court was the
status of the eight million dollars received by Mr Thompson personally on the
sale of Nutra-Life. He said it was his
separate property. Mrs Thompson said
this was relationship property, derived from the sale of their health food
business.
In return for the eight million dollars, Mr
Thompson signed a restraint of trade. He
agreed not to work in competition against Next Capital for the longer of five
years from the sale or two years from the date he stopped being a director of
Next Capital. The price paid for the
business would be lower if it were not for the restraint of trade.
The Supreme Court considered it critical in
this case that ownership of the family trust was agreed to be relationship
property even though at law it was not.
Payment for a restraint of trade which increases the value of
relationship property is itself relationship property. Since the Thompsons treated the MLT Trust as
if it were relationship property, eight million dollars paid for a restraint of
trade on the sale of Trust assets was also relationship property to be split
50/50.
Thompson
v. Thompson – Supreme Court (13.03.15)
15.020